Hedge fund tries to short Gamestop, now gets short squeezed by R/wallstreetbets

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    It amuses me more than it should that a major hedge fund is suffering now because of a random band of internet trolls. I don't condone their actions, but I also don't have much sympathy for the hedge fund.

Whats wrong with their actions ?
They saw an opportunity and used it.

It is coordinated action to distort the market. If the actors were a group of institutional investors it would probably be considered market manipulation and the group would be punished.

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https://mobile.twitter.com/AOC/status/1354830697459032066

It will be hilarious when AOC (and Ted Lieu, who posted a similar Tweet) when they realize that WallStreetBets was once moderated by Martin Shkreli the Pharma Bro, fully embodies his attitudes, and has substantial overlap with MAGA (which has already been noted by several media outlets). Defending r/WSB brigading/market manipulation is not the hill they want to be dying on.

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https://mobile.twitter.com/AOC/status/1354830697459032066

It will be hilarious when AOC (and Ted Lieu, who posted a similar Tweet) when they realize that WallStreetBets was once moderated by Martin Shkreli the Pharma Bro, fully embodies his attitudes, and has substantial overlap with MAGA (which has already been noted by several media outlets). Defending r/WSB brigading/market manipulation is not the hill they want to be dying on.

I doubt they care. Whatever their partisan preferences prior to this debacle, the ideology of the bear-raiding hedge fund that was targeted is worse and - more importantly - it has brought about far more actual harm. It's the power dynamics that matter here and I don't think I'm alone on the left in seeing an attempt at popular organisation being suppressed by greedy oligarchs.

Then they should push the SEC and the exchanges for restrictions on short selling, not cheering blatant collusion and market manipulation. If this maneuver were tried by a group of institutional investors, or god forbid a group of bulge bracket banks which if unrestricted would have the capacity to drive any stock to 0 or infinity at will, the SEC would shut them down immediately. Brokers are clearly taking provisional actions to calm down the situation in advance of new regulations against this sort of brigading, which will likely be coming from the SEC.

You can't even say this is the "noble little guys" against "Big Bad Wall Street" when the set of "noble little guys" is full of disreputable characters.

[compucomp]

https://mobile.twitter.com/AOC/status/1354830697459032066

It will be hilarious when AOC (and Ted Lieu, who posted a similar Tweet) when they realize that WallStreetBets was once moderated by Martin Shkreli the Pharma Bro, fully embodies his attitudes, and has substantial overlap with MAGA (which has already been noted by several media outlets). Defending r/WSB brigading/market manipulation is not the hill they want to be dying on.

I doubt they care. Whatever their partisan preferences prior to this debacle, the ideology of the bear-raiding hedge fund that was targeted is worse and - more importantly - it has brought about far more actual harm. It's the power dynamics that matter here and I don't think I'm alone on the left in seeing an attempt at popular organisation being suppressed by greedy oligarchs.

Then they should push the SEC and the exchanges for restrictions on short selling, not cheering blatant collusion and market manipulation. If this maneuver were tried by a group of institutional investors, or god forbid a group of bulge bracket banks which if unrestricted would have the capacity to drive any stock to 0 or infinity at will, the SEC would shut them down immediately. Brokers are clearly taking provisional actions to calm down the situation in advance of new regulations against this sort of brigading, which will likely be coming from the SEC.

A provisional action to calm everything down would be to freeze the stock, not just block one aspect of it.

What, so the people who joined in the frenzy, not all of which were brigading particularly towards the end, have to hold and watch as their holdings tank? At least this way it lets the "noble little guy" of your imagination take their profit. The exchange has already halted trading of these stocks several times in the last week.

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The more I think about this, the more I find the r/WSB maneuver to be similar to Trumpism and MAGA. They find a "big bad establishment" enemy, "Wall Street" in this case, find loopholes in the rules to execute deplorable behavior attacking said enemy (collusion and market manipulation in this case), and then justify their deplorable behavior by saying they were going after the "right" target, the hated establishment, while attacking the establishment further for "being unfair" when it tries to repair the damage.

The substantial overlap between WSB and MAGA has already been established by several media outlets. To all the people on this thread cheering WSB on, how do you feel to be essentially cheering MAGA? Has it ever occurred to you that the profits from this maneuver may ultimately be funneled into MAGA?

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No one is saying these retail investors are heroes or anything. Some of them are rich but a lot of them are just ordinary Americans investing their stimulus checks into something where they saw a chance and a major screw up by a big player. Rather than the market rewarding at least the earlier group of these people for seeing a good chance the market decides to mess the whole game up so the original big guy will win in the end.

1. These "ordinary Americans" are free to close their positions and collect their 1000% profit.

2. Melvin Capital and Citron Research have closed out their shorts at massive losses. To say the "big guy" will win is untrue.

3. The behavior of AMC/GME stocks the last few days is totally unnatural and unhealthy. It was caused by collusion among market actors. These are prohibited behaviors, if institutional market participants colluded like this the SEC would shut them down immediately. The fact that retail investors were able to collude using Reddit as a forum is a loophole and I'm sure the SEC is studying this situation now. New regulations (on retail brokers probably, maybe additional scrutiny on forums like r/WSB) will be coming to address this behavior.

Basically the WSB logic is very similar to the MAGA logic on the morning of Jan. 6, "We're going to have an armed protest and storm the Capitol, we're on the right side since we're overturning the stolen election, nothing's going to happen to us since the police are undermanned and on our side, what could go wrong?"

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I don't understand why we're talking about regulating Reddit when these hedge funds shorted well over 100% of $GME lol. This short squeeze would not happen on just some generic stock, these people got too greedy and made a mistake and are refusing to eat the loss.

If you think excessive shorting of stock is unhealthy for the market then you should lobby the SEC to enact regulations against it. The solution is not to blow up the market completely. The relevant funds have already eaten the loss. This logic is like MAGA saying that their storming of the Capitol is justified in retaliation against BLM and Antifa torching police stations last summer.

On the subject of regulating Reddit, if the manipulation were coordinated by say 20 institutional traders over Bloomberg Chat, the chat log would quickly be uncovered and these traders would be facing dismissal from their firms and being barred from the industry, and their firms would have to pay back the ill-gotten gains plus additional penalties. The fact that retail investors coordinated were able to coordinate over Reddit is clearly a loophole that needs to be addressed.  

[compucomp]

No one is saying these retail investors are heroes or anything. Some of them are rich but a lot of them are just ordinary Americans investing their stimulus checks into something where they saw a chance and a major screw up by a big player. Rather than the market rewarding at least the earlier group of these people for seeing a good chance the market decides to mess the whole game up so the original big guy will win in the end.

1. These "ordinary Americans" are free to close their positions and collect their 1000% profit.

2. Melvin Capital and Citron Research have closed out their shorts at massive losses. To say the "big guy" will win is untrue.

3. The behavior of AMC/GME stocks the last few days is totally unnatural and unhealthy. It was caused by collusion among market actors. These are prohibited behaviors, if institutional market participants colluded like this the SEC would shut them down immediately. The fact that retail investors were able to collude using Reddit as a forum is a loophole and I'm sure the SEC is studying this situation now. New regulations (on retail brokers probably, maybe additional scrutiny on forums like r/WSB) will be coming to address this behavior.

Basically the WSB logic is very similar to the MAGA logic on the morning of Jan. 6, "We're going to have an armed protest and storm the Capitol, we're on the right side since we're overturning the stolen election, nothing's going to happen to us since the police are undermanned and on our side, what could go wrong?"

I'd like you to elaborate a bit on this "collusion." From what I can see, there's no kind of formal agreement or strategy among investors to act. Certainly there are a lot of people on Reddit and Twitter saying that they're buying the stocks and intend to do so to punish the short sellers, but its hard to see how that could be collusion under any definition. If a bunch of people decide to buy based on the stories they hear about others buying/bad hedge fund behavior how is that any different than investors buying when they hear that a company had a good quarter or selling when they hear about a corporate scandal?

The discussion on WSB was "everyone buy GME and GME calls now", so people did so, drove GME shares up, causing a short squeeze.

Similarly, Trump said there would be protests on Jan. 6, yelled on Twitter repeatedly about it, then gave a speech at the White House on Jan. 6 saying everyone should go to the Capitol, and they did so. But so far we don't have evidence that Trump directly coordinated with any group about Jan. 6 events. So Trump has done nothing wrong?

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I don't understand why we're talking about regulating Reddit when these hedge funds shorted well over 100% of $GME lol. This short squeeze would not happen on just some generic stock, these people got too greedy and made a mistake and are refusing to eat the loss.

If you think excessive shorting of stock is unhealthy for the market then you should lobby the SEC to enact regulations against it. The solution is not to blow up the market completely. The relevant funds have already eaten the loss. This logic is like MAGA saying that their storming of the Capitol is justified in retaliation against BLM and Antifa torching police stations last summer.

On the subject of regulating Reddit, if the manipulation were coordinated by say 20 institutional traders over Bloomberg Chat, the chat log would quickly be uncovered and these traders would be facing dismissal from their firms and being barred from the industry, and their firms would have to pay back the ill-gotten gains plus additional penalties. The fact that retail investors coordinated were able to coordinate over Reddit is clearly a loophole that needs to be addressed.  

Also, is a taking head on TV saying X stock is a good buy is market manipulation?
Should we ban any forums or discussions on the stock as any opinion can be interpreted as an opinion?

It can be market manipulation, yes. That's why you have that disclosure about the analyst's holdings and conflicts of interest immediately before/after they speak, and if they are found subsequently to be trading against their public pick, they will be punished for it.

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As I was saying, the SEC is now looking at enforcement action against the GameStop traders.

https://finance.yahoo.com/news/will-the-sec-sue-gamestop-traders-183845241.html

Traders who gobbled up GameStop (GME) stock in the Reddit-user-fueled push to squeeze short sellers could end up on the defending side of enforcement action if officials can find out who they are and show they tried to manipulate or deceive the markets.

Indeed, Fox Business Network’s Charlie Gasparino tweeted on Thursday that regulatory sources were telling him they would be looking at a market manipulation case related to GameStop trading.

However, a successful case against those who caused the spikes is no slam dunk. That’s partly because it could be hard for regulators to show that traders intentionally deceived market participants into thinking that GameStop’s fundamentals were healthier than they actually were.

[compucomp]

No one is saying these retail investors are heroes or anything. Some of them are rich but a lot of them are just ordinary Americans investing their stimulus checks into something where they saw a chance and a major screw up by a big player. Rather than the market rewarding at least the earlier group of these people for seeing a good chance the market decides to mess the whole game up so the original big guy will win in the end.

1. These "ordinary Americans" are free to close their positions and collect their 1000% profit.

2. Melvin Capital and Citron Research have closed out their shorts at massive losses. To say the "big guy" will win is untrue.

3. The behavior of AMC/GME stocks the last few days is totally unnatural and unhealthy. It was caused by collusion among market actors. These are prohibited behaviors, if institutional market participants colluded like this the SEC would shut them down immediately. The fact that retail investors were able to collude using Reddit as a forum is a loophole and I'm sure the SEC is studying this situation now. New regulations (on retail brokers probably, maybe additional scrutiny on forums like r/WSB) will be coming to address this behavior.

Basically the WSB logic is very similar to the MAGA logic on the morning of Jan. 6, "We're going to have an armed protest and storm the Capitol, we're on the right side since we're overturning the stolen election, nothing's going to happen to us since the police are undermanned and on our side, what could go wrong?"

I'd like you to elaborate a bit on this "collusion." From what I can see, there's no kind of formal agreement or strategy among investors to act. Certainly there are a lot of people on Reddit and Twitter saying that they're buying the stocks and intend to do so to punish the short sellers, but its hard to see how that could be collusion under any definition. If a bunch of people decide to buy based on the stories they hear about others buying/bad hedge fund behavior how is that any different than investors buying when they hear that a company had a good quarter or selling when they hear about a corporate scandal?

The discussion on WSB was "everyone buy GME and GME calls now", so people did so, drove GME shares up, causing a short squeeze.

Similarly, Trump said there would be protests on Jan. 6, yelled on Twitter repeatedly about it, then gave a speech at the White House on Jan. 6 saying everyone should go to the Capitol, and they did so. But so far we don't have evidence that Trump directly coordinated with any group about Jan. 6 events. So Trump has done nothing wrong?

How is that any different than stories you see all the time saying "this analyst says that right now you should buy X share" or Jim Cramer telling people every day on CNBC to buy one company or another? Are those collusion?

Your Trump comparison is an ultra-strained reach to try to discredit the small investors. These are (comparably) unsophisticated investors who don't have the ability to control the market themselves. There is no figurehead at the head of this telling people who will do whatever they say what to do.

Clearly the retail investors do have the ability to control the market on GME and AMC when coordinated. The short squeeze didn't "just happen", that's like saying Jan. 6 was a spontaneous event. A mob formed, riled up by the rhetoric on r/WSB, and decided to take destructive collective action. By the "incitement" standard r/WSB would be clearly guilty of whatever Facebook, Twitter, Parler, etc. were guilty of prior to Jan. 6. The SEC will find out just how much coordination there was (and probably subpoena Reddit to do so).

FINRA/SEC know that stock-picking analysts like Jim Cramer can easily be manipulating the market, so there are regulations against that.

[compucomp]

No one is saying these retail investors are heroes or anything. Some of them are rich but a lot of them are just ordinary Americans investing their stimulus checks into something where they saw a chance and a major screw up by a big player. Rather than the market rewarding at least the earlier group of these people for seeing a good chance the market decides to mess the whole game up so the original big guy will win in the end.

1. These "ordinary Americans" are free to close their positions and collect their 1000% profit.

2. Melvin Capital and Citron Research have closed out their shorts at massive losses. To say the "big guy" will win is untrue.

3. The behavior of AMC/GME stocks the last few days is totally unnatural and unhealthy. It was caused by collusion among market actors. These are prohibited behaviors, if institutional market participants colluded like this the SEC would shut them down immediately. The fact that retail investors were able to collude using Reddit as a forum is a loophole and I'm sure the SEC is studying this situation now. New regulations (on retail brokers probably, maybe additional scrutiny on forums like r/WSB) will be coming to address this behavior.

Basically the WSB logic is very similar to the MAGA logic on the morning of Jan. 6, "We're going to have an armed protest and storm the Capitol, we're on the right side since we're overturning the stolen election, nothing's going to happen to us since the police are undermanned and on our side, what could go wrong?"

I'd like you to elaborate a bit on this "collusion." From what I can see, there's no kind of formal agreement or strategy among investors to act. Certainly there are a lot of people on Reddit and Twitter saying that they're buying the stocks and intend to do so to punish the short sellers, but its hard to see how that could be collusion under any definition. If a bunch of people decide to buy based on the stories they hear about others buying/bad hedge fund behavior how is that any different than investors buying when they hear that a company had a good quarter or selling when they hear about a corporate scandal?

The discussion on WSB was "everyone buy GME and GME calls now", so people did so, drove GME shares up, causing a short squeeze.

Similarly, Trump said there would be protests on Jan. 6, yelled on Twitter repeatedly about it, then gave a speech at the White House on Jan. 6 saying everyone should go to the Capitol, and they did so. But so far we don't have evidence that Trump directly coordinated with any group about Jan. 6 events. So Trump has done nothing wrong?

How is that any different than stories you see all the time saying "this analyst says that right now you should buy X share" or Jim Cramer telling people every day on CNBC to buy one company or another? Are those collusion?

Your Trump comparison is an ultra-strained reach to try to discredit the small investors. These are (comparably) unsophisticated investors who don't have the ability to control the market themselves. There is no figurehead at the head of this telling people who will do whatever they say what to do.

Clearly the retail investors do have the ability to control the market on GME and AMC when coordinated. The short squeeze didn't "just happen", that's like saying Jan. 6 was a spontaneous event. A mob formed, riled up by the rhetoric on r/WSB, and decided to take destructive collective action. By the "incitement" standard r/WSB would be clearly guilty of whatever Facebook, Twitter, Parler, etc. were guilty of prior to Jan. 6. The SEC will find out just how much coordination there was (and probably subpoena Reddit to do so).

FINRA/SEC know that stock-picking analysts like Jim Cramer can easily be manipulating the market, so there are regulations against that.

Again, the difference is that “incitement” had to be incitement of a crime. The January 6th mob committed a bunch of crimes. If you want to say the same standard applies, you have to point to a crime that was committed here.

Easy, securities fraud. I suspect the current rules are not strict enough to nail the traders, but I'm glad the SEC will try and I'm sure there will be new regulations in the future to guard against this kind of behavior by retail investors.

It would already be illegal if institutional traders agreed to all buy a stock at once to punish a hedge fund.

[compucomp]

No one is saying these retail investors are heroes or anything. Some of them are rich but a lot of them are just ordinary Americans investing their stimulus checks into something where they saw a chance and a major screw up by a big player. Rather than the market rewarding at least the earlier group of these people for seeing a good chance the market decides to mess the whole game up so the original big guy will win in the end.

1. These "ordinary Americans" are free to close their positions and collect their 1000% profit.

2. Melvin Capital and Citron Research have closed out their shorts at massive losses. To say the "big guy" will win is untrue.

3. The behavior of AMC/GME stocks the last few days is totally unnatural and unhealthy. It was caused by collusion among market actors. These are prohibited behaviors, if institutional market participants colluded like this the SEC would shut them down immediately. The fact that retail investors were able to collude using Reddit as a forum is a loophole and I'm sure the SEC is studying this situation now. New regulations (on retail brokers probably, maybe additional scrutiny on forums like r/WSB) will be coming to address this behavior.

Basically the WSB logic is very similar to the MAGA logic on the morning of Jan. 6, "We're going to have an armed protest and storm the Capitol, we're on the right side since we're overturning the stolen election, nothing's going to happen to us since the police are undermanned and on our side, what could go wrong?"

I'd like you to elaborate a bit on this "collusion." From what I can see, there's no kind of formal agreement or strategy among investors to act. Certainly there are a lot of people on Reddit and Twitter saying that they're buying the stocks and intend to do so to punish the short sellers, but its hard to see how that could be collusion under any definition. If a bunch of people decide to buy based on the stories they hear about others buying/bad hedge fund behavior how is that any different than investors buying when they hear that a company had a good quarter or selling when they hear about a corporate scandal?

The discussion on WSB was "everyone buy GME and GME calls now", so people did so, drove GME shares up, causing a short squeeze.

Similarly, Trump said there would be protests on Jan. 6, yelled on Twitter repeatedly about it, then gave a speech at the White House on Jan. 6 saying everyone should go to the Capitol, and they did so. But so far we don't have evidence that Trump directly coordinated with any group about Jan. 6 events. So Trump has done nothing wrong?

How is that any different than stories you see all the time saying "this analyst says that right now you should buy X share" or Jim Cramer telling people every day on CNBC to buy one company or another? Are those collusion?

Your Trump comparison is an ultra-strained reach to try to discredit the small investors. These are (comparably) unsophisticated investors who don't have the ability to control the market themselves. There is no figurehead at the head of this telling people who will do whatever they say what to do.

Clearly the retail investors do have the ability to control the market on GME and AMC when coordinated. The short squeeze didn't "just happen", that's like saying Jan. 6 was a spontaneous event. A mob formed, riled up by the rhetoric on r/WSB, and decided to take destructive collective action. By the "incitement" standard r/WSB would be clearly guilty of whatever Facebook, Twitter, Parler, etc. were guilty of prior to Jan. 6. The SEC will find out just how much coordination there was (and probably subpoena Reddit to do so).

FINRA/SEC know that stock-picking analysts like Jim Cramer can easily be manipulating the market, so there are regulations against that.

Again, the difference is that “incitement” had to be incitement of a crime. The January 6th mob committed a bunch of crimes. If you want to say the same standard applies, you have to point to a crime that was committed here.

Easy, securities fraud. I suspect the current rules are not strict enough to nail the traders, but I'm glad the SEC will try and I'm sure there will be new regulations in the future to guard against this kind of behavior by retail investors.

It would already be illegal if institutional traders agreed to all buy a stock at once to punish a hedge fund.

Where is the fraud? Clearly it is not a requirement of the stock market that you must trade solely on fundamentals. And punishing an investor for how they invest isn't illegal either; the whole idea of a "poison pill" is to punish an investor for their investment decisions. There is no misrepresentation at play; its not like the Redditors are pushing fake news about how GameStop is actually a trillion dollar company. There's plenty of encouragement to buy shares to other small investors, but as has already been discussed that's super-common in financial journalism already. Unless you think this Reddit mob being secretly directed by some kind of investor puppetmaster there's no fraud at work.

I have no idea what kind of rules you think the SEC will put in place here; should they make it illegal to publish which companies are being shorted? Or maybe they should ban non-journalists from talking about companies they want to do well on the market?

The maneuver, if done by institutional traders, would be a clear violation of the Securities  Exchange Act of 1934 and related SEC regulations against collusive trading and market manipulation. If prosecuted in a court it would most likely be classified as a securities fraud case.

The fact that it was done by retail investors in my personal judgement probably means the law and regulations don't cover it. r/WSB found a loophole in the rules, they made money, good for them. But that doesn't make them freedom fighters or anything of the sort. I'm glad the SEC is going after them to see if they violated any rules. The SEC could stop this kind of behavior by requiring brokers to monitor and guard against this activity (which they're basically doing now) and make forums like r/WSB into monitored spaces similar to how Bloomberg chats are monitored.