GameStop short squeeze
The short squeeze was initially and primarily triggered by users of the subreddit r/wallstreetbets, an Internet forum on the social news website Reddit, although a number of hedge funds also participated.
At its height, on January 28, the short squeeze caused the retailer's stock price to reach a pre-market value of over US$500 per share ($125 split-adjusted), nearly 30 times the $17.25 valuation at the beginning of the month.
[3][4][5] GameStop, an American chain of brick-and-mortar video game stores, had struggled in the years leading up to the short squeeze due to competition from digital distribution services, as well as the economic effects of the COVID-19 pandemic, which reduced the number of people who shopped in-person.
Keith Gill, known by the Reddit username "DeepFuckingValue" (often referred to in more formal contexts as "DFV" for short to omit the profanity) and by the YouTube and Twitter alias "Roaring Kitty",[14][15][16] purchased around $53,000 in call options on GameStop's stock in 2019 and saw his position rise to a value of $48 million by January 27, 2021.
He stated on January 29, 2021, after the GameStop short squeeze, that he "thought this trade would be successful" but "never expected what [had] happened over the last week", adding that he planned to continue his YouTube channel as Roaring Kitty and potentially buy a house.
[24] On January 11, the stock jumped following the announcement that activist investor and Chewy co-founder and former CEO Ryan Cohen was joining GameStop’s board, a move that was interpreted as positive for the gaming retailer.
[40][41] According to Bloomberg, U.S. trading volumes (by share count) on January 27 exceeded the peak set in October 2008 during the financial crisis, and was the third-highest in dollar terms within the last 13 years on record.
[60] On January 29, it was reported that Robinhood had raised an additional $1 billion to protect the company from the financial pressure placed by the increased interest in particular stocks and meet the collateral requirements of clearing houses.
[101] Due to the enormous losses, Left stated that Citron Research would stop providing short-sell analysis, and instead focus on "long side multibagger opportunities for individual investors".
[105] According to Morgan Stanley, a number of hedge funds covered their short positions and sold shares in their portfolio to reduce leverage and market exposure, in some of the largest such actions within 10 years.
In addition, whereas short sellers had always needed to be alert for potential lawsuits from the companies they targeted, the squeeze prompted worry about attacks on social media and, in some cases, threats to their personal safety.
[113][114] An analysis by Reuters concluded that some of Wall Street's largest asset managers were able to realize gains both from their share stakes, as well as from lending out stocks to short sellers.
[115] Similarly, an analysis by investment bank JP Morgan Chase suggested that institutional investors were heavily involved in the trading activity related to the short squeeze.
[170] On January 29, 2021, the U.S. Securities and Exchange Commission announced it was reviewing the incident with the aims "to protect retail investors"[171] from "abusive or manipulative trading activity"[172] and "to identify and pursue potential wrongdoing".
[173] Attorney General of New York Letitia James confirmed in a press release that her office would look into the matter, saying "We are aware of concerns raised regarding activity on the Robinhood app, including trading related to the GameStop stock".
[179][180] Representatives focused their attention on Robinhood's role in the event, asking Tenev why the brokerage had limited the trading of some securities and if it had clearly communicated its business model to its customers.
[188][189][190] Similarly, a man in Colorado filed a federal lawsuit against Robinhood as well as Citadel, Charles Schwab, Interactive Brokers, Open to the Public Investing, TD Ameritrade, and Webull, alleging he "was forced into a situation by which he was essentially forced to sale his equities at a drastically reduced position given the new market condition set by these supposedly neutral brokerage houses, taking significant losses and being incapable of trading in these publicly held equities that he had performed significant due diligence and research on, and relied upon over the course of his job as a day trader.
In January 2022 Judge Altonaga ruled that investors could not pursue negligence and breach of fiduciary duty claims, citing Robinhood's customer agreement which allowed for restrictions on trading.
[195] A lawsuit was filed in federal court in Massachusetts by securities class action firm Hagens Berman Sobol Shapiro on behalf of an investor against Keith Gill.
[197] On February 8, 2021, the U.S. Securities and Exchange Commission released a sample letter providing guidance to companies seeking to raise capital during periods of "extreme price volatility".
A variety of politicians and commentators across the political spectrum made statements in support of those driving up the price of GameStop and other stocks, as well as against Robinhood and other companies' decision to limit these trades, including Representative Alexandria Ocasio-Cortez,[212] Senator Ted Cruz,[213] Representatives Ro Khanna,[214] Ted Lieu,[215] and Rashida Tlaib,[216] Fox Business host Charles Payne,[217] and conservative political commentators Rush Limbaugh,[218] Ben Shapiro,[219] and Donald Trump Jr.[220][221] Senator Elizabeth Warren criticized both the short sellers and the buyers, and argued that more regulation was needed.
"[223][224] In an interview with CNBC, Massachusetts Secretary of the Commonwealth William F. Galvin criticized the investors' behavior as based on reckless speculation and called for a 30-day suspension of trading GME stock, stating "I think we've all recognized the current pandemic has created a unique situation where many have gotten into day-trading and really have no idea exactly what they're doing ...
[233] Palihapitiya, who passed on early investment opportunities in Robinhood, opined that the founding co-CEOs, Baiju Bhatt and Vladimir Tenev, lacked integrity and urged his followers to delete the app.
[243][additional citation(s) needed] However, investor Michael Burry, who had acquired a 3.3-percent stake in GameStop in 2019, criticized the short squeeze, stating that "there should be legal and regulatory repercussions", and adding "this is unnatural, insane, and dangerous".
Other co-owners of the Charlotte Hornets with Jordan also experienced heavy losses due to short positions on GameStop, being forced into tens of billions of dollars of debt as a result.
[250] Menlo Park police reported ten separate incidents related to protests at Robinhood headquarters from January 28 to February 9, including a man throwing animal feces at the building's front door.
[255] Following the decision by brokerage firm Robinhood to halt the buying of stocks affected by the short squeeze, users on Reddit and other social media called in question its relationship with Citadel Securities.
[262] The statement was made as the hashtag #KenGriffinLied was trending on said platform, in which users accused Citadel's CEO Ken Griffin of having lied under oath to Congress.
[268] Separately, Metro-Goldwyn-Mayer (MGM) acquired the rights to make its own movie based on Ben Mezrich's book proposal The Antisocial Network, aimed at chronicling the recent events on Wall Street.
[271] Jaime Rogozinski, who founded r/wallstreetbets in 2012, sold off his life experience to RatPac Entertainment,[272] and a documentary based on the event, created by the studios XTR and The Optimist and partially funded by a Kickstarter campaign, is also in the works.
