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GameStop shares soar 105% after Robinhood reopens trading but the SEC warns of SEVERE losses

GameStop shares are surging again, after the ‘Bounty Hunter of Wall Street’ conceded defeat and said he will no longer bet against companies, but the Securities and Exchange Commission is warning of ‘severe’ risk to investors amid the volatility.

GameStop shares soared as much as 105 percent in early trading on Friday as Robinhood lifted its restrictions on the unlikely stock, which has surged by 1,700 percent this month thanks to the ‘Wolves of Reddit.’ 

The Reddit insurgency against hedge funds was led in part by YouTuber ‘Roaring Kitty’, a 34-year-old financial advisor named Keith Patrick Gill, who broke cover on Friday at his suburban Massachusetts home and appeared to be leaving with luggage ahead of the weekend.

His nemesis Citron Research founder Andrew Left, the ‘Bounty Hunter of Wall Street’ and one of the key investors who had bet against GameStop, said on Friday morning that he would no longer publish ‘short reports’ and instead focus on opportunities for ‘long’ investments, a term for betting that the stock of a company will rise. 

The notorious activist short-seller has claimed that he pulled the plug on his bets against GameStop after suffering losses of 100 percent as the stock surged this week. His fund and Melvin Capital were the main targets of a Reddit campaign to beat hedge funds at their own game by driving up share prices of GameStop this month.

It’s not clear how much Left lost on his bet against GameStop, because he invests his own money and doesn’t have to disclose certain investments to regulators. Citron’s website says Left has 18 years of investing experience. 

Other investors oftentimes follow Left’s lead, though, and those who did also were badly burned at GameStop shares surged this month.

In an unusual statement just before the start of trade, the SEC said it ‘is closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days.’ 

‘Our core market infrastructure has proven resilient under the weight of this week’s extraordinary trading volumes. Nevertheless, extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence,’ the statement added.

GameStop’s continued rally came as Robinhood began to allow ‘limited’ purchases of shares on Friday after provoking widespread outrage with a buying ban yesterday, as the trading platform struggled to cover the bets its customers made amid extreme volatility. 

YouTuber ‘Roaring Kitty’, a 34-year-old financial advisor named Keith Patrick Gill, broke cover on Friday and was spotted at his suburban Massachusetts home after helping to lead the charge to buy and hold GameStop to punish short-sellers

Gill was spotted leaving with bags packed ahead of the weekend, as the GameStop rally he spurred continued

Gill was spotted leaving with bags packed ahead of the weekend, as the GameStop rally he spurred continued

Gill was spotted leaving with bags packed ahead of the weekend, as the GameStop rally he spurred continued

Citron Research founder Andrew Left, the 'Bounty Hunter of Wall Street' and one of the key investors who had bet against GameStop, said on Friday morning that he would no longer publish 'short reports' advocating bets against companies

Citron Research founder Andrew Left, the ‘Bounty Hunter of Wall Street’ and one of the key investors who had bet against GameStop, said on Friday morning that he would no longer publish ‘short reports’ advocating bets against companies

Even as it relaxed restrictions on GameStop and 12 other stocks, Robinhood cracked down on purchases of Bitcoin and other cryptocurrency, saying that it could not extend temporary credit to customers to buy crypto amid extreme price swings.

‘Due to extraordinary market conditions, we’ve temporarily turned off Instant buying power for crypto. Customers can still use settled funds to buy crypto. We’ll keep monitoring market conditions and communicating with our customers,’ a Robinhood spokeswoman said on Friday.

Through the ‘Instant Buying’ feature on Robinhood, customers have instant access to funds from bank deposits and proceeds from stock transactions. Instant Buying is a paid feature that allows users to instantly settle transactions.

The GameStop assault is directed squarely at hedge funds and other Wall Street titans that had made bets the struggling video game retailer’s stock would fall. 

Left and other have already essentially admitted defeat — but the army of small investors organizing on the Reddit forum WallStreetBets is pledging to keep up the momentum for GameStop shares in hopes of inflicting more pain. On the forum, many boast that they will never sell until the hedge funds are driven to ruin.

The moves are reverberating across the stock market. Investors say the mounting losses for the big professional investors, who had been banking on a drop for GameStop’s stock, are pushing them to sell other stocks that they own to raise cash, which is helping to pull down the broader market.

Professional investors on Wall Street say they expect the amateur investors who are pushing up GameStop to eventually get burned when the stock collapses. The struggling retailer is expected to still lose money in its next fiscal year, and many analysts say its stock should be closer to $15 than the $380 price it opened at on Friday.

In response, many users on Reddit have said they can keep up the pressure longer than hedge funds can stay solvent, although they often use more colorful language to do that.

YouTuber 'Roaring Kitty', a 34-year-old financial advisor named Keith Patrick Gill, broke cover on Friday and was spotted at his suburban Massachusetts home after helping to lead the charge to buy and hold GameStop to punish short-sellers

YouTuber 'Roaring Kitty', a 34-year-old financial advisor named Keith Patrick Gill, broke cover on Friday and was spotted at his suburban Massachusetts home after helping to lead the charge to buy and hold GameStop to punish short-sellers

YouTuber ‘Roaring Kitty’, a 34-year-old financial advisor named Keith Patrick Gill, broke cover on Friday and was spotted at his suburban Massachusetts home after helping to lead the charge to buy and hold GameStop to punish short-sellers

Gill led the charge to squeeze GameStop short-sellers, costing hedge funds billions, by broadcasting on YouTube from the basement of his modest Massachusetts home, where he lives with his wife and young child

Gill led the charge to squeeze GameStop short-sellers, costing hedge funds billions, by broadcasting on YouTube from the basement of his modest Massachusetts home, where he lives with his wife and young child

A day earlier, GameStop and several other downtrodden stocks that had been soaring suddenly halted their momentum after Robinhood and other trading platforms restricted trading. It caused an outcry by customers and even both Democrats and Republicans in Washington. 

It came after Robinhood said it had been forced to raise $1billion to keep the pipes of trading flowing: The company needed the money at the ready to pay out customers who could be owed money on trades. The company also drew down a line of credit to the tune of around $600 million from banks, Bloomberg reported.

It was forced to boost its reserves, so to speak, to have a cushion of money ready to pay out customers and other firms it does business with in case of big wins or losses on particular bets. Without the extra cash infusion, Robinhood would have needed to put the brakes on even more trades – as it did Thursday – to make sure it had enough money to pay out wins – and put a limit on losses.

‘This is a strong sign of confidence from investors that will help us continue to further serve our customers,’ a Robinhood spokesman, Josh Drobnyk, told the New York Times.

Before the injection of money, Robinhood, a cheap trading platform favored by the WallSreetBets Reddit group, had even started selling its users’ stock without their permission on Thursday after market volatility put the White House on alert.

Robinhood CEO Vlad Tenev, 33, last night defended his firm’s decision to sell users’ shares without permission as protesters gathered on Wall Street to vent their fury at the hedge fund establishment.

‘We had to make a very difficult decision. It’s been a challenging day,’ Tenev told MSNBC.

Vlad Tenev, the CEO and co-founder of Robinhood, on Thursday night defended his company's actions

Vlad Tenev, the CEO and co-founder of Robinhood, on Thursday night defended his company’s actions

GameStop shares soared in early trading on Friday as Robinhood lifted its restrictions on the unlikely stock

GameStop shares soared in early trading on Friday as Robinhood lifted its restrictions on the unlikely stock

Robinhood cited ‘recent volatility’ for the decision to block users from buying stock in GameStop and 12 other companies which the Reddit users had selected for ‘short squeezes.’ 

The company needed to bolster its cash cushion to be able to do business. With the extra cash infusion, Robinhood said it would lift restrictions on certain stocks, which had been limited on Thursday. 

Robinhood began forcibly close certain stock positions if they were deemed 'too risky' and involved large amounts of borrowed funds

Robinhood began forcibly close certain stock positions if they were deemed ‘too risky’ and involved large amounts of borrowed funds

A ‘short squeeze’ happens when investors target a stock – in this case, GameStop, that has a large ‘short interest’. A short is when an investor essentially places a bet that a stock will go down. If it goes down, the investor makes money. But a squeeze happens when another investor bets that the stock is going to go up. If enough investors do that, the price of the stock pushes higher and squeezes out the short – causing the investor who bet that the stock would go down to lose money.   

Meanwhile, the company has been hit with a class-action lawsuit accusing it of siding with Wall Street by blocking investors’ ability to buy shares. 

Radio host and Trump loyalist Rush Limbaugh compared the hoopla surrounding Reddit group WallStreetBets to the backlash against Donald Trump, asserting that the elites in the ‘Deep State’ would ‘destroy’ anyone who managed to beat them.

Tenev defended his position on CNBC, saying: ‘We made the decision in the morning to limit the buying of about 13 securities on our platform. So to be clear customers could still sell those securities, if they had positions in them, and they could also trade in the thousands of other securities on our platforms.

‘That’s what we had to do as part of normal operations.’

But Robinhood’s buying halts drew fierce backlash from members of the Reddit forum WallStreetBets, which had promoted the stock, and the Senate Banking Committee announced it would hold a hearing on the matter. 

On Thursday, a federal class action lawsuit was filed against Robinhood in the Southern District of New York over the move to halt certain trades.

The suit accused Robinhood of ‘pulling securities like [GameStop] from its platform in order to slow growth and help benefit individuals and institutions who are not Robinhood customers but are Robinhood large institutional investors or potential investors.’

Some critics have accused Robinhood of catering to Citadel Securities, a hedge fund that is a major investor in the company, and also pays for order flow in an arrangement that subsidizes the app’s free trading.

Citadel this week participated in an nearly $3 billion bailout of Melvin Capital, one of the hedge funds that faced crushing losses as GameStop shares rallied this month – but Citadel claimed in a statement that it had not ordered the trading halt.

‘Citadel Securities has not instructed or otherwise caused any brokerage firm to stop, suspend, or limit trading, or otherwise refuse to do business,’ the fund said.

Tenev likewise flatly denied that Robinhood had faced any outside pressure to limit buying on certain shares, telling CNBC the claim is ‘completely false, that’s complete misinformation’ and adding ‘nobody pressured us’.

Robinhood co-founders Vlad Tenev, left, and Baiju Bhatt pose at company headquarters in Palo Alto

Robinhood co-founders Vlad Tenev, left, and Baiju Bhatt pose at company headquarters in Palo Alto

Robinhood: The trading app for amateurs started by two millennial best friends

Baiju Bhatt and Vladimir Tenev founded Robinhood in 2013, saying they were inspired by the Occupy Wall Street protests. 

Robinhood is a free stock trading app that allows users to easily load cash and buy and sell stocks and options.

The popular app boasts 13 million users, and reportedly about half of them own shares of GameStop.

On Thursday, Robinhood restricted the purchase of shares in GameStop and several other stocks popular on the Reddit forum WallStreetBets.

Baiju Bhatt

Vladimir Tenev

Baiju Bhatt (left) and Vladimir Tenev (right) founded Robinhood in 2013, saying they were inspired by the Occupy Wall Street protests

Traders who own the stocks are still able to hold or sell them on Robinhood, but no users are being allowed to purchase new shares.

The move drew furious condemnation across the political spectrum, and accusations that Robinhood is coming to the aid of hedge funds at the expense of small investors. 

Legal experts say brokerages have broad powers to block or restrict transactions.

Bhatt and Tenev met while they were students at Stanford University, and had previously collaborated to start a high-frequency trading firm and a company selling software to professional traders.

Both have an estimated net worth of about $1 billion, thanks to their stakes in Robinhood, which is valued at $11.7 billion.

Last month, the SEC ruled that Robinhood had misled its customers about how it was paid by Wall Street firms for passing along customer trades and that the start-up had made money at the expense of its customers. 

Robinhood agreed to pay a $65 million fine to settle the charges, without admitting or denying guilt. 

Bhatt, 36, is the son of Indian immigrants, and earned a bachelor’s degree in physics and master’s in mathematics from Stanford.

Tenev, 34, was born in Bulgaria and moved to the US with his family when he was five. He earned a bachelor’s in mathematics from Stanford and dropped out of a PhD program to team up with Bhatt. 

A separate lawsuit filed in Chicago said the halt of trading of certain stocks ‘was to protect institutional investment at the detriment of retail customers’ and is in ‘lockstep’ with other trading platforms.

‘The halt of retail trading for these stocks has caused irreparable harm and will continue to do so,’ the suit alleged.

Pressed as to why they had to do it, Tenev insisted that it was not due to pressure from any hedge fund or investors.

He said it was because, as a brokerage firm, they needed to meet certain financial requirements such as SEC net capital requirements and clearing house deposits.

‘In order to protect the firm and protect our customers we had to limit buying in these stocks,’ he said.

He said they wanted to create ‘a stable and reliable platform’, and were confident that was the case.

CNBC’s Andrew Ross Sorkin asked whether there was a problem within the firm.

‘There’s no liquidity problem’ he said. ‘We’re doing what we can to allow buying and remove these restrictions in the morning.’

He said the app had had ‘unprecedented interest’.

By noon, a federal class action lawsuit had been filed against Robinhood in the Southern District of New York over the move to halt certain trades

By noon, a federal class action lawsuit had been filed against Robinhood in the Southern District of New York over the move to halt certain trades

House and Senate committees to hold hearings into Robinhood’s move

The House Financial Services and Senate Banking committees said on Thursday they will hold hearings on the stock market after users of investment apps faced trading limits following the ‘Reddit rally’ that put a charge into GameStop and other volatile stocks that were touted in online forums.

‘We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility and we must examine the market in general and how it has been manipulated by hedge funds and their financial partners to benefit themselves while others pay the price,’ said Representative Maxine Waters, a Democrat who heads the House panel.

Waters added the hearing will focus on ‘short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors.’

Senator Sherrod Brown, the incoming Banking committee, chair, said ‘People on Wall Street only care about the rules when they’re the ones getting hurt.’ 

Tenev insisted that Robinhood did stand for ordinary investors.

‘It pains us to have had to impose these restrictions, and we’ll do what we can to enable trading,’ he said.

‘We understand our customers are upset. We stand with the everyday investor.’

He added: ‘I don’t think anyone could have anticipated that this would happen.’

An estimated half of Robinhood’s 13 million users reportedly own stock in GameStop, and they responded to the trading restrictions with a flurry of class action lawsuits and complaints to the Securities and Exchange Commission.

Among the most bullish investors in GameStop was a man going by the name Roaring Kitty.

Keith Patrick Gill, the person behind the Roaring Kitty YouTube streams which, along with a string of posts by Reddit user DeepF***ingValue, helped attract a flood of retail cash into GameStop, burning hedge funds who had bet against the company and roiling the broader market.

In his social media messages and videos, Gill repeatedly made the bull case for the beleaguered bricks-and-mortar retailer and shared images of his trading account profit on the stock, sparking a following of likeminded GameStop enthusiasts.

Gill is a 34-year-old financial advisor from Massachusetts and until recently worked for insurance giant MassMutual, public records and social media posts show. 

Outrage at Robinhood appeared to briefly unite the country, with GOP Senator Ted Cruz, Don Trump Jr, and Democrat Reps. Alexandria Ocasio-Cortez and Rashida Tlaib all blasting the app for shutting down trades while hedge funds remain free to buy and sell stocks as they please.

Barstool Sports founder and amateur investor Dave Portnoy even called for Robinhood co-founders Vladimir Tenev and Baiju Bhatt to be ‘jailed’.

‘PRISON TIME. Dems and Republicans haven’t agreed on 1 issue till this. That’s how blatant, illegal, unfathomable today’s events are,’ tweeted Portnoy.


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