Reddit recovered from an hour-long outage that affected thousands of users on Wednesday afternoon as volatility returned to stocks including GameStop GME.N> and AMC that were at the center of a slugfest between retail traders and Wall Street.
Videogame retailer GameStop, which had closed up about 104% on Wednesday and was once again a favorite pick on the WallStreetBets page, doubled in extended trading, even as the social media platform was not fully functional.
Analysts that follow the stock offered several reasons for the surge, including a corporate reshuffle. The firm had on Tuesday said its finance head Jim Bell will step down next month.
Reddit, now more famous for its day-trading forum where individual traders recently triggered a rally in many shorted stocks, has faced several outages in recent months.
At the peak of the latest outage, there were more than 52,000 reports of people facing issues with the platform, according to outage tracking website Downdetector.
To be sure, Downdetector only tracks outages by collating status reports from a series of sources, including user-submitted errors on its platform. The outage might have affected a larger number of users.
SwaggyStocks, which aggregates sentiment on shares discussed on WallStreetBets which has about 9 million participants, showed GameStop and AMC were the most discussed stocks on the page.
Shares of the cinema theater operator AMC, which closed up 18%, were up another 15% after the bell.
(Reuters) – GameStop Chief Financial Officer Jim Bell will step down next month, the video game retailer said on Tuesday, as it focuses on shifting into technology-driven sales in the wake of headline-grabbing big betting in its stock.
GameStop said Bell’s resignation was not due to any disagreement with the company relating to its operations, including accounting principles and practices.
However, a source said that while Bell’s exit was unrelated to the recent wild swings in GameStop’s stock spurred by retail traders on the Reddit social media site, his departure was initiated by the company.
The source, a person familiar with the firm’s thinking, said GameStop had become dissatisfied with Bell as it works to transform into a technology-oriented business and was not confident he would be the right CFO moving forward.
Bell, who will leave the company on March 26, previously worked at brick-and-mortar retailers Gap Inc and Coldwater Creek and restaurant chain P. F. Chang’s China Bistro, according to his LinkedIn profile. He did not respond to requests for comment.
Shares of GameStop fell about 5% to $42.75 in extended trading after the announcement. The stock has risen about 140% this year, after paring most of the gains that sent short sellers scrambling to cover losing bets and saw the company hit a record high of $482.95.
GameStop has also been targeted by shareholders pushing it to focus more on digital sales rather than its mall-based locations.
New directors focused on this strategy have recently joined its board and the source said those additions had helped create more momentum for the CFO transition.
GameStop said it has begun a search for a permanent CFO, adding that it would appoint Chief Accounting Officer Diana Jajeh as interim CFO if a permanent replacement was not found before Bell’s departure.
Key quotes from the GameStop testimonies: ‘I am not a cat’
(Reuters) – At a grilling by lawmakers over the frenzied trading in retailer GameStop, Keith Gill, a YouTube streamer known as Roaring Kitty, hedge fund managers and the head of Robinhood and Reddit defended their actions.
Those testifying were Robinhood CEO Vlad Tenev, Melvin Capital CEO Gabriel Plotkin, Citadel CEO Ken Griffin and Reddit CEO Steve Huffman.
Here are the testimonies here of the players involved and a link here to biographies of some of them.
Some quotes from the hearing:
“A few things I am not. I am not a cat. I am not an institutional investor, nor am I a hedge fund. I do not have clients and I do not provide personalized investment advice for fees or commissions. I am just an individual whose investment in GameStop and posts on social media were based upon my own research and analysis.”
“Investing can be risky and my approach can be risky but for me personally, yes (I would buy GameStop now). Yes, I do find it attractive at this price point.”
“My investment in Gamestock was based on the fundamentals.”
“Increased transparency could help. That someone like me could have a better understanding of how those things work … would help retail investors.”
ROBINHOOD CEO VLAD TENEV:
“We always felt comfortable with our liquidity… The additional capital we raised wasn’t to meet capital requirements or deposit requirements… ”
“I recognize customers were very upset (from the restrictions on trading)… it would have been significantly worse if we had prevented customers from selling.”
“Not at all, zero pressure (from anyone on the panel to decide to restrict trading), it was a collateral depository decision.”
“I’m sorry for what happened. I apologize. I’m not going to say that Robinhood did everything perfect and we haven’t made mistakes in the past, but what I commit to is making sure that we improve from this, learn from it, and we don’t make the same mistakes in the future. And Robinhood as an organization will learn from this and improve and make sure it doesn’t happen again, and I will make sure of that.”
CITADEL CEO KEN GRIFFIN
“As I was trying to explain… the quality of the execution varies by the channel of the order, this is a commonly understood phenomenon in economics.”
“We have fought for 15 years to make that the basis by which orders are allocated because we strongly believe Citadel is better to provide better execution for retail orders in the long run.”
“We are able to share our trading acumen with retail investors, give them a better price and give payments for orderflow to firms like Robinhood.
“This has been very important for the democratization of finance.”
“I believe that the short interest in Gamestop was exceptional. I’m not sure it’s worth us delving into legislative corrections for a very unique situation.”
MELVIN CAPITAL CEO GABRIEL PLOTKIN
“I think it is a really good question (regarding more reporting around shorting). It is not for me to decide. But if those are the rules then I will certainly abide by them.”
“Anytime we short a stock, we locate a borrower. Our systems actually force us to find a borrower.”
REDDIT CEO STEVE HUFFMAN
“We spend a lot of time at Reddit ensuring the authenticity of our platform. So we’ve got a large team dedicated to this exact task. Everything on Reddit – all of the content is created by users, voted on by users and ranked by users, and we make sure that that is authentic, and as unmanipulated as possible. And in this specific case, we did not see any signs of manipulation.”
(Reuters) – Wall Street hedge fund managers, the chief executives of Robinhood and Reddit, and a YouTube streamer known as Roaring Kitty face a grilling on Thursday afternoon from U.S. lawmakers over the Reddit rally in shares of GameStop Corp.
Some of Wall Street’s most powerful players, including billionaire Republican mega-donor and Citadel CEO Ken Griffin, will make rare public statements about their business practices during the Congressional hearing on how Reddit users trading on retail platforms banded together to squeeze hedge funds that had bet against shares of the video game retailer and other companies.
Griffin will appear before the Democratic-led House finance panel alongside Robinhood CEO Vlad Tenev, Melvin Capital CEO Gabriel Plotkin, Reddit CEO Steve Huffman, and Keith Gill, a Reddit user and YouTube streamer known as Roaring Kitty who promoted his investment in GameStop.
The five men have been at the center of the saga that roiled Wall Street in January prompting probes by several federal and state agencies.
With Wall Street critic Representative Maxine Waters at the helm and Alexandria Ocasio-Cortez and other progressives on the 54-member panel, the hearing promises to be firey, with tough questions for Tenev, Griffin and Plotkin in particular.
“Once or twice a year a hearing lends itself to good theater…Thursday’s hearing is one of those rarities,” wrote Ian Katz at Alpha Partners in Washington, adding the hedge fund moguls are likely to be top targets for Democrats.
A spokesman for Waters declined to comment ahead of the hearing. In prepared testimony published on Wednesday, the witnesses generally acknowledged the GameStop saga was unprecedented, but they all said there was no foul play on their part.
The Reddit rally drove massive volatility in GameStop and other shares, prompting the post-trade “clearing” houses that guarantee trades to call for billions of dollars in extra collateral from Robinhood and other retail trading platforms.
In response, many suspended buying in the affected stocks on Jan. 28. Lawmakers from both parties were outraged and questioned if the trading platforms were siding with the hedge funds over Mom and Pop investors.
New York-based Melvin Capital, one of several hedge funds that had bet GameStop’s shares would tumble, suffered massive losses as the stock soared leading up to Jan. 28. Citadel made a $2 billion investment in Melvin on Jan. 25.
Lawmakers will likely focus on whether Robinhood made it too easy for small investors to take risks, said analysts. Its commercial arrangements with market makers to which it routes orders may also be a hot topic, they said, as well as whether that “payment for order flow” model may disadvantage customers.
Robinhood says few of its customers engage in risky trades, while “payment for order flow” often helps customers get better prices than trading on a stock exchange.
Tenev, Griffin and Plotkin are likely to be grilled on short selling, and whether Robinhood’s decision to suspend buying in the affected stocks was influenced by Citadel or Griffin, who majority-owns Citadel Securities, a Robinhood market maker.
All parties have denied any attempt by Citadel or Citadel Securities to influence Robinhood’s policies.
Yet legislative action is unlikely once the fireworks dissipate, said Isaac Boltansky, director of policy research at Washington-based Compass Point Research & Trading.
“We doubt that Washington can advance an acute policy prescription when broader concerns regarding equity market structure and economic equality complicate the conversation.”
(Reuters) – Reddit trading lingo may filter in to Washington on Thursday when top hedge fund managers, the head of Robinhood and Roaring Kitty himself are set to give testimony before U.S. House of Representatives lawmakers.
The lingo of the online traders of Reddit’s WallStreetBets group, or WSB, which fueled a surge in GameStop Corp’s stock, prompted even singer Dionne Warwick to ask on Twitter here, “What are stonks and why is it a trending subject?”
For the uninitiated, here is a guide to understanding some common WSB words.
An intentional misspelling of “stocks” that originated with an internet meme.
The social media pseudonym of Keith Gill, a financial adviser in Massachusetts whose Reddit posts and YouTube video streams helped drive interest in GameStop’s stock.
An acronym for “you only live once.” If someone on WSB has “yoloed” a stock, that person has poured a significant portion of their investments into it.
Someone who has taken heavy losses on a stock, in WSB parlance: While others may have profited from a similar position in the past, that person has been left holding the bag.
Shorthand for chicken tenders, which WSB uses as slang for profits on a trade.
Often referenced using emoji, “diamond hands” are how members express their belief that their position is valuable and worth holding on to for maximum profit. Conversely, a trader with “paper hands” sells out early.
TO THE MOON
A rallying cry on WSB, which members use to express their belief that a stock will rise significantly. The phrase is often accompanied by a rocket emoji.
(Reuters) – Melvin Capital Management Chief Executive Gabriel Plotkin, Robinhood Markets CEO Vladimir Tenev and Keith Gill, a YouTube streamer known as Roaring Kitty, laid out their defense ahead of a grilling on Thursday by lawmakers over the Reddit-fueled rally in retailer GameStop Corp. (bit.ly/3pucdNd)
(Reuters) – North American cannabis companies rocketed in value in recent days – before plunging on Thursday – as the Reddit forums behind a month of frenzied stock market trading stoked interest in a sector booming on the back of expectations of decriminalization.
However, the investment case for the sector’s biggest players, nicknamed Gang Weed by Reddit’s WallStreetBets community, differs substantially from that of GameStop Corp – or “Gamestonk” as it was dubbed by many online – and from other retailers involved in the past month’s surges.
Pot stocks have been rising for months, fueled by state moves toward decriminalization across the United States and, since November, expectations that President Joe Biden will seek to relax federal prohibitions on marijuana.
With Democrats also taking of control of the Senate, Majority Leader Chuck Schumer promised last week to make the issue a priority.
Federal decriminalization would allow interstate movement of cannabis products, making it possible for companies to begin operating in a similar fashion to the alcohol industry.
At the same time, banks and other financial institutions, previously restrained by the federal prohibition, will be able to work with cannabis companies, giving the industry access to much-needed financing.
However, experts caution against over-enthusiasm and say actual changes could require full legalization.
For now, no U.S. marijuana producer has been allowed to list on a U.S. exchange and U.S.-based investment and mutual funds have largely avoided investing in Canadian-listed producers.
As a result, in contrast to GameStop, much of whose stock was held by major U.S. financial institutions, the companies driven higher in the past week tend to be owned by a much more diverse range of small hedge funds, investors and venture capitalists.
The biggest investor in Sundial Growers Inc, for example, is hedge fund Hudson Bay Capital, with a small stake of 1.26%, according to Refinitiv data. No other financial investor holds more than 1% of its shares.
This means that the rally to date has likely already been driven by small – or “retail” – investors.
On Reddit’s WallStreetBets thread, Sundial, Tilray Inc and Aphria Inc were the three most discussed stocks on Wednesday, according to one regular count of the number of mentions. (www.reddit.com/user/pdwp90/)
SHORT OF SHORTS
The huge rises in shares of GameStop, cinema operator AMC Entertainment Holdings Inc and Blackberry Ltd last month were also the result of a squeeze on hedge funds and other investors who had taken out “short” bets on those stocks falling.
After months of gains, short interest – the percentage of a company’s shares that have been borrowed as part of short trades – in the marijuana companies is an average of just under 14%. Tilray, among the biggest gainers but also engaged in a complicated merger with rival Aphria, has the highest short interest, at just over 23%, according to financial analytics firm S3.
That compares with the peak short interest as a percentage of the shares in GameStop on Jan. 4 at 141.86%, according to S3. That means that any squeeze on investors who have bet against the stock will have less impact.
(Reuters) – GameStop Corp decided it could not seize on the Reddit-fueled rally in its shares to sell hundreds of millions of dollars worth of stock because of regulatory restrictions, according to three people familiar the U.S. video game retailer’s internal deliberations.
The Grapevine, Texas-based company found itself at the epicenter of an unprecedented trading frenzy last month, as amateur investors organized on social media sites such as Reddit to bet against Wall Street hedge funds that had shorted its shares.
While many heavily shorted stocks, from movie theater operator AMC Entertainment Holdings Inc to headphone maker Koss Corp, also scored big rallies, “Gamestonk”, as it was nicknamed by many online, including Tesla Inc CEO Elon Musk, became synonymous with the wave of trading speculation.
GameStop’s market value soared from $1.4 billion on Jan. 11 to a peak of $33.7 billion on Jan. 28. At that point, GameStop could have raised hundreds of millions of dollars through a stock sale to pay down its debt pile, which totaled $216 million net of cash as of the end of October, and fund its transformation into a digital gaming service, as sales at its mall-based stores dwindle.
Yet GameStop never sold shares, the sources said, despite being egged on by many Wall Street pundits to do so. While it could still sell shares in the coming weeks, the opportunity to raise hundreds of millions of dollars has now slipped as the rally in its shares reversed. It now has a market value of $3.6 billion.
GameStop examined the possibility of selling stock during the rally, the sources said. The company had already registered with the U.S. Securities and Exchange Commission (SEC) to sell $100 million worth of stock in December, an option it did not exercise, the sources added.
GameStop decided it was restricted under U.S. financial regulations from selling shares because it was in possession of significant information about its finances that was not yet available to the public, the sources said. The SEC requires companies to have released such information when conducting stock sales.
The information pertained to GameStop’s fiscal fourth quarter, which ended at the end of January. By the time its shares took off in the second half of January, company executives had already compiled data and had a clear picture of what the quarter would look like, the sources said.
GameStop could have gone ahead with a stock sale by releasing preliminary earnings. But such a move, carried out for the purposes of a stock sale, came with significant logistical hurdles and regulatory risk that the company was not willing to accept, one of the sources said. The SEC had said it would scrutinize how companies took advantage of the trading volatility to sell stock and had asked that they provide more information to investors about the potential risks.
A GameStop spokesman declined to comment. The SEC did not immediately respond to a request for comment.
“They were two and a half months into their quarter when all this stuff took place. It’s so deep in the quarter that from a legal and corporate governance perspective they would likely be obligated to pre-announce some high-level financial information for the quarter. And that can’t be prepared in just a week,” said David Erickson, a finance lecturer at the University of Pennsylvania’s Wharton School who was previously co-head of global equity capital markets at Barclays Plc.
AMC, AMERICAN AIRLINES
Other companies in the midst of the Reddit frenzy whose financial quarters finished at the end of December and had already updated investors on their latest financial performance, were able to sell stock when their shares rallied at the end of January.
AMC, whose movie theater business has been hurt by the pandemic, raised roughly $1.2 billion through debt and equity deals after its shares rallied more than 700%.
American Airlines Group Inc, which has also suffered as demand for flights plummeted, pulled the trigger on a plan to sell more than $1 billion of stock last month after its shares rallied as much as 48%.
GameStop has lost market share to larger competitors, including Best Buy Co Inc and Amazon.com Inc, as consumers buy video games online or through big-box retailers.
Robert W. Baird & Co analysts wrote last month that the best outcome for GameStop shareholders would be for the company to close the majority of its physical stores and diversify into online businesses, including hosting tournaments and events.
One of GameStop’s largest shareholders, online pet store Chewy Inc co-founder Ryan Cohen, and two of his partners joined the company’s board in January. Last year, hedge funds Hestia Capital Partners and Permit Capital Enterprise Fund also won seats on the board.
By: Jessica DiNapoli, Svea Herbst-Bayliss, Joshua Franklin
Months before the irrational trading in GameStop Corp, there was Hertz Global Holdings Inc.
Operating under bankruptcy protection last spring once the COVID-19 pandemic wiped out its business, the car-rental giant confronted an extraordinary situation: Its stock price was skyrocketing for no apparent reason.
Conversations at the time among Hertz management and directors on its board, reported here for the first time, turned from shock to a vigorous debate about whether the company should capitalize on its unexpected good fortune and sell shares to fund itself during bankruptcy proceedings, according to three people familiar with the deliberations.
Raising money through a share sale would be less expensive for Hertz, which was bleeding cash as travel and car rentals plunged, than tapping a costly bankruptcy loan that most companies in its situation use to navigate court restructurings.
Directors keen on selling shares fended off concerns from some in Hertz’s C-suite and boardroom that such a move risked misleading investors who failed to appreciate that creditors are always paid first in bankruptcy, two of the sources said.
Shareholders, on the other hand, usually lose their shirts.
But Hertz abandoned its plan to sell up to $500 million in new shares after the U.S. Securities and Exchange Commission (SEC) started scrutinizing it. Hertz declined to comment.
Over the past few weeks, soaring stock prices of GameStop – along with movie theater chain AMC Entertainment Holdings Inc, home goods retailer Bed, Bath & Beyond Inc and other companies – on the back of Reddit memes and YouTube videos have put company leaders in a similar situation.
The internal Hertz deliberations offer a window into the contours of the ethical and regulatory dilemmas they face. Namely, can they sell stock to raise capital in such a volatile market?
Regulators are watching. The acting head of the SEC has said in recent days that the agency is looking closely at how companies are behaving, including whether they are trying to raise money and adequately disclosing risks associated with it to investors.
“Taking advantage of what could potentially be a manipulated market would trigger both reputational and legal concerns,” said Donald Langevoort, a Georgetown University Law Center professor and former SEC attorney.
The SEC declined to comment.
As a social-media-fueled retail trading frenzy has whipsawed a series of “stonks” – a Reddit meme for stocks – over the past few weeks, the companies in the eye of the storm have largely kept quiet. But three sources familiar with some of these companies said discussions about surging shares are taking place in their C-suites and boardrooms as well.
Unlike Hertz, these companies are not under bankruptcy protection. So far, they are taking different approaches.
GameStop, whose shares slumped as much as 84% in the first week of February after surging more than 25-fold the previous month, has paperwork lined up to sell $100 million worth of new equity but has not yet disclosed whether it has done so. American Airlines Group Inc pulled the trigger on a plan to sell more than $1 billion of stock after its shares recently rallied as much as 48%.
GameStop and American declined to comment.
AMC, which previously warned it could file for bankruptcy after the pandemic temporarily closed its cinemas, has raised roughly $1.2 billion through debt and equity deals. It is now racing to file papers with regulators to sell shares possibly worth hundreds of millions of dollars more, two people familiar with the matter said.
“A company would be silly not to” consider selling additional shares, one source close to AMC said. “Any company that is thinking seriously would want to talk it through and decide what strategies are available.”
AMC did not respond to a request for comment. In late January, Chief Executive Adam Aron said recent fundraising meant “any talk of an imminent bankruptcy for AMC is completely off the table.”
That was the dilemma Hertz faced last spring. The company filed for bankruptcy last May, crumbling under roughly $19 billion of debt as the pandemic decimated its business.
Roughly two weeks later, Hertz shares vaulted nearly 16 times to a high of $6.25, almost unheard of at the time for any company, let alone one under bankruptcy protection. Directors, executives and company advisers were befuddled, three sources familiar with the matter said. Calling around, there were no signs that a hedge fund or other large institutional investor was buying shares, one of the sources said.
An adviser talked with an investor who suggested the trading app Robinhood was behind the unexpected rise, the source said. Indeed, Hertz was among the platform’s most popular stocks. “Hertz bankruptcy is CANCELLED by Robinhood ‘investors,’” a Reddit commenter called “itsnotshade” wrote at the time. “Good job guys.”
Some Hertz directors saw an opportunity to bolster its cash coffers with a stock sale. But some in the management, along with other directors, pushed back over concerns the shares were virtually worthless and any offering would take advantage of small-time investors unfamiliar with bankruptcy law, the sources familiar with the discussions at the time said.
Directors favoring a share sale countered that, while rare, shareholders sometimes receive payouts in bankruptcy cases, one of the sources said. Shares of other companies under bankruptcy protection, such as J.C. Penney Co Inc and Whiting Petroleum Corp, were also spiking at the time.
Eventually, the board decided to proceed with selling shares. On June 12, U.S. Bankruptcy Judge Mary Walrath approved Hertz’s plan to sell new shares. In court filings, Hertz touted that it would not have to repay the money and that the move was better for its creditors.
Hertz alerted the SEC and warned prospective buyers they would likely lose all their money.
But the deal was done before it started. In a television interview, then-SEC Chairman Jay Clayton said the agency had informed Hertz it had “comments” on the stock offering, and that most companies do not go forward after hearing from the regulator until the issues are resolved. Reuters could not determine the content of the SEC’s feedback on the offering.
The next day, Hertz, not wanting to antagonize regulators, pulled the offering, two of the sources said.
Hedge funds, small investors and their stockbrokers are bracing for tougher U.S. markets regulation, with officials expected to meet this week to assess the fallout from a social-media driven trading frenzy that has roiled stocks and silver prices.
Mass buying by amateur traders over the past two weeks has driven wild price gyrations in companies that big U.S. fund managers had bet against, including videogame retailer GameStop and cinema operator AMC Entertainment.
As their brokers have imposed buying curbs, small traders’ darling stocks have tumbled for two days running. Early trade in their Europe-listed shares on Wednesday will be the next guide as to whether they are in freefall just as regulators circle.
GameStop shares have fallen 80% from a peak a week ago, while AMC Entertainment stock has shed 60%. The stocks had gained as much as 2,300% and 800% respectively since mid-January, fuelled by posts on the popular Reddit forum WallStreetBets.
Silver, which briefly surged on Monday as small traders bought up the metal, steadied about 10% below its recent peak.
“The unwind is obvious,” said Oriano Lizza, premium sales trader at brokerage CMC Markets in Singapore. But he added that it would be easy for nimble small investors to regroup and target fresh companies.
“I think from a regulatory standpoint the concern is that they could continue to do this,” he said.
The head of the U.S. Securities and Exchange Commission, which regulates markets, will meet with Treasury Security Janet Yellen and the heads of the Federal Reserve and the Commodity Futures Trading Commission as soon as Thursday, a Treasury official told Reuters.
Yellen has asked to discuss recent volatility and whether trade has been consistent with fair and efficient markets.
It is not clear if it will result in action, but experts expect focus to also fall on the ever-larger role played by non-bank firms such as hedge funds in the financial markets and small traders are bracing for a showdown.
“Final boss fight. It’s happening tomorrow with Yellen, SEC and Federal Reserve,” read one Wednesday post on Reddit. “They are either going to try and stop the party or they are looking for money to pay us and not crash everything at the same time.”
Small investors’ participation in stockmarkets has exploded over the past year as pandemic lockdowns, volatility and stimulus payments have driven a worldwide day-trading craze.
The phenomenon has pushed equity indexes from New York to Seoul to record heights and boosted the price of assets from cyptocurrencies to new stock market listings.
The assault on GameStop short-sellers took it to a new level as small traders appeared to act in concert as they organised buying over Reddit. Posts encouraging silver buying also boosted prices on Monday, although that proved shortlived.
“The power of the retail investor exists,” said Chris Brankin, CEO at TD Ameritrade in Singapore.
“We could see other similar events more regularly, but be sure the regulators will look to curb any market (volatility) or manipulation,” he said.
In the washup, Melvin Capital, one of the biggest funds betting on a drop in GameStop’s share price, lost 53% in January. Others, such as billionaire investor Steven Cohen’s Point72 Asset Management lost nearly 9%, investors said.
Online broker Robinhood has also come under pressure and has scrambled to raise more than $3 billion in a week as it races to meet funding neets stemming from the trading boom.
Robinhood further relaxed some of its restrictions on trade on Tuesday, increasing buying limits on GameStop stock, for example, from 20 shares to 100 shares.
Frankfurt listed GameStop shares begin trading at 0700 GMT and they open for U.S. pre-market trade at 0900 GMT.