Melvin Capital is facing a wave of lawsuits from plaintiffs who allege that the hedge fund tangled up in the GameStop debacle has conspired to restrict trading for retail investors, causing them to lose money.
The investment firm founded by Gabriel Plotkin disclosed nine legal complaints in its most recent ADV filing, which social media investors on Reddit gleefully discussed at length this week. The complaints were first reported by Institutional Investor.
The suits accuse Melvin Capital and other market leaders of colluding to restrict retail trading in January, when a freeze on individual accounts trading shares of GameStop, AMC, and other so-called “meme” stocks had retail investors and regulators crying foul play.
Author(s): Sarah Min
Publication Date: 24 March 2021
Publication Site: ai-CIO
The consternation over the stock price surges at GameStop and AMC is rooted in their disconnect with their financial performance – both companies are losing money, made worse by the pandemic lockdowns.
The other shoe is yet to drop for those who bid up the share price of GameStop, according to Indarte. “I think we’re going to see more pain felt potentially by the retail investors that are in effect bidding up the price of GameStop,” she predicted. “It’s hard to justify the prices that we’ve been seeing for the company, based on the company’s fundamentals.” In the latest quarter, GameStop reported a 30% fall in revenues to $1 billion and a loss of $18.8 million. Similarly, AMC has also shuttered most of its theaters, and recently secured $917 million in financing to stave off bankruptcy.
In addition to the soundness of its fundamentals, a company’s stock price can also be driven by investor sentiment, “but there is large heterogeneity between different companies for the importance of both,” according to Binsbergen. Much of the price discovery depends on the liquidity and the total market capitalization of the stock, he noted. Small and illiquid stocks are more susceptible to non-fundamental price movements than larger stocks, he explained.
Author(s): Jules H. van Binsbergen, Sasha Indarte
Publication Date: 29 January 2021
Publication Site: Knowledge @ Wharton
GameStop and AMC Entertainment tumbled in overnight trading, then rebounded sharply in the premarket Thursday following a meteoric rally amid a retail buying frenzy.
Shares of the brick-and-mortar video game retailer dropped 15.97% in extended trading, following a more-than 130% gain during regular hours. In premarket trading early Thursday, its shares bounced 30% higher.
The movie theater chain sank 26.58% in overnight trading, after shares soared 300% in extremely heavy trading. Its shares were little changed in premarket trading.
The pair have been popular targets in the “Wallstreetbets” Reddit chat room where a wave of at-home traders focus on heavily shorted stocks, pushing share higher and squeezing out short-selling hedge funds.
Author: Yun Li
Publication Date: 27 January 2021
Publication Site: CNBC