Two of the major hedge funds targeted by investors on Reddit, which increased the share price of GameStop, waved expensive flags of defeat and sold their investments, losing millions of dollars.
On Wednesday, the share price of GameStop (GME), the video game shopping mall, rose 134%, a staggering 748% rise in just one week after Reddit investors launched a chaotic short push to raise the price and investors .
Wall Street hedge funds, including Citron Research and Melvin Capital, shortened the stock, meaning they were betting against it and that it had to drop price to make their investments succeed.
The meeting place for internet investors, the popular subreddit r / WallStreetBets (WSB), gained a million extra members in just one day, as the GameStop print received widespread media attention and followed the memes.
Andrew Left of Citron Research, who called the redditors an “angry mob” last week after trying to hack his Twitter account and harassing his family after saying GME would drop to $ 20, said on Wednesday a video statement announced. He confirmed that Citron Research had closed its short position on GME, which basically means that it sold out its investment and chose to reduce its losses before the price rose further.
“I can not answer another phone call,” Left said in the video. “How are you? Are you OK? Are you busy? What about GameStop? Should I miss it here? People I have not spoken to in 20-30 years – it caught the attention of America. ”
“I’m fine. Citron Capital is just fine,” he said. “Most of the short in the ’90s, with a loss of 100%, had a small manageable position and I let it go.”
This means that Left sold most of its investment when the stock was sold in the $ 90 range. It closed at $ 330 on Wednesday.
Left also says in the video that as a longtime activist investor, he has respect for WSB and redditors entering into hedge funds, acknowledging that the market is changing.
“Although we have been called boomers many times over the past week, we understand the changing dynamics in the market, and with that we will become more discerning when it comes to shorting stocks,” says Left. “It doesn’t mean the industry is dead, it just means you need to be more specific.”
Melvin Capital announced Wednesday morning that it has been sold out of GME. The news about Melvin Capital was announced on CNBC by Andrew Ross Sorkin, who said he had spoken to the fund’s manager, Gabe Plotkin.
“They came out of stock yesterday afternoon. “They took a pretty big loss,” Sorkin said. He added that he did not know the total of the loss.
On Monday, Melvin received more than $ 2 billion in emergency cash to stabilize the fund and allow the shortened position to close, the Wall Street Journal reported.
Some of the WSB editors did not believe Melvin had closed his position and encouraged investors not to sell GME.
After the boom on Wednesday, TD Ameritrade, one of the free brokerage apps regularly used by young investors, briefly restricted trading in some stocks, including GameStop and AMC (another target of the WSB crowd) “around the reduce risk to our company and customers. ‘It frustrated many who saw the stop when Wall Street businesses stopped investors from trading that would improve their personal wealth.
Nasdaq CEO Adena Friedman said her stock market could temporarily stop trading, allowing investors to “recalibrate” if one of the stocks is targeted in the same way that happened with GameStop.
“If we see a significant increase in chats on social media channels,” Friedman told CBNBC, as reported by Mediate, “we also agree with unusual trading activities,” [and] could possibly stop that stock to allow us to investigate the situation, to enter into discussions with the company and give investors the opportunity to recalibrate their positions. ‘
Senator Elizabeth Warren, who has long struggled to hold Wall Street accountable, has called on the major financial players to be appalled when everyday investors use the same hedge fund techniques as businesses have used to build their own wealth.
“For years, the same hedge funds, private equity firms and wealthy investors who were shocked by the GameStop traders treated the stock market like their own personal casino, while everyone else paid the price,” she said.