The big GameStop short: Reddit traders outmaneuver US hedge funds

[AC-Phoenix]

Originally Posted by Anh_Minh

I seriously doubt anyone's going to get sued, let alone convicted, for buying a few $1000s' worth of stock. Market manipulation is hard to prove to start with, but here? How would that even work?

Also, I'm not an expert, but shorting 140% of float, giving the illusion of more stock being for sale than actually exists, sounds more market-manipulationy to me than saying "a few hedge funds are going to really need those stocks soon" when it's true.

It's really not. Shortselling is a bet on a company's stock going down, rather than up.
A lot of redditers on the other hand didn't decide on getting those shares because they wanted to make a quick buck but to damage the hedgefond, which is two separate things. And in the redditers case it's even rather easy to prove due to them leaving a digital footprint.

That aside, should the hedgefond survive, it could still decide to slapsuit them.Although it might not even count as slapsuit per se, should the hedgefond be able to prove that they acted with the mens rea of damaging them. - Really depends on the country. - And yes the mens rea can, again be proven through the reddit posts.

As for the issue of slapsuits, see

YouTube

https://youtu.be/UN8bJb8biZU

Sorry; dynamic content not loaded. Reload?

And yeah, Murrey could just sue again, even John Oliver admits that.

[Anh_Minh]

Originally Posted by AC-Phoenix

It's really not. Shortselling is a bet on a company's stock going down, rather than up.
A lot of redditers on the other hand didn't decide on getting those shares because they wanted to make a quick buck but to damage the hedgefond, which is two separate things. And in the redditers case it's even rather easy to prove due to them leaving a digital footprint.

That aside, should the hedgefond survive, it could still decide to slapsuit them.Although it might not even count as slapsuit per se, should the hedgefond be able to prove that they acted with the mens rea of damaging them. - Really depends on the country. - And yes the mens rea can, again be proven through the reddit posts.

As for the issue of slapsuits, see

YouTube

https://youtu.be/UN8bJb8biZU

Sorry; dynamic content not loaded. Reload?

And yeah, Murrey could just sue again, even John Oliver admits that.

"They bought it because they knew I was going to want it" isn't illegal. It's basically what every stock buyer does - buying hoping that someone in the future would want it.

And there's another aspect: who is it that wants retail traders using their hard earned money on stock trading instead of, say, the real economy? Hedge funds, who own platforms like Robin Hood, or buy data from them.

[Eisdrache]

Originally Posted by Anh_Minh

And they could reach that plateau asymptotically.

Well, the price has peaked at 500 or so before coming back down in the 300s, so it's not like it's an infinite rise.

If A and B are trading shorts between the two of them and both have let's say $500 in money, if the price goes above $1000 both of them cannot afford to continue further. Either way in the twitter post with the explanation you linked earlier the author stated that theoretically prices could rise infinitely which is what I don't understand.

Originally Posted by Anh_Minh

And selling something you do not actually have is precisely what a short is...

Something you don't have is not the same as something that does not exist. You shouldn't be able to trade 140% of something because these 40% do not exist.

[Anh_Minh]

Originally Posted by Eisdrache

Well, the price has peaked at 500 or so before coming back down in the 300s, so it's not like it's an infinite rise.

If A and B are trading shorts between the two of them and both have let's say $500 in money, if the price goes above $1000 both of them cannot afford to continue further. Either way in the twitter post with the explanation you linked earlier the author stated that theoretically prices could rise infinitely which is what I don't understand.

You could say it's hyperbole. Or you could say it's because there's no limit to the price the holder of a stock put on it. If I had a stock, there's no law that keeps me from saying I want a gazillion dollars for it - I just won't find a buyer.

Something you don't have is not the same as something that does not exist. You shouldn't be able to trade 140% of something because these 40% do not exist.

That's because one stock can be lent out several times.

Let's say Alice has a GME stock. Bob wants to short-sell, so he borrows Alice's stock and sells it to Carol. Now Carol has a GME stock, and as it happens, Daniel wants to short-sell. So he borrows Carol's stock and sells it to Elvira, Mistress of the Dark (I couldn't think of another name in E).

[EroKing]

[AC-Phoenix]

Originally Posted by Anh_Minh

"They bought it because they knew I was going to want it" isn't illegal. It's basically what every stock buyer does - buying hoping that someone in the future would want it.

Just that I'm saying "They bought it with the money as a secondary objective, while the primary objective is destroying the hede for the lolz."


Also, unlike EU citizens (and I'm not even sure it's all of them), US citizens are mostly not protected against slapsuits, which don't require anything being illegal in the first place as their goal is damaging, or at least teaching the other party a lesson, using a court of law as an instrument.
Unlike what you might be used to, US citizens don't automatically get their lawyer's fees back from the opposing party, they have to pay them themselves, regardless of the result.

[scififan]

Originally Posted by Anh_Minh

You could say it's hyperbole. Or you could say it's because there's no limit to the price the holder of a stock put on it. If I had a stock, there's no law that keeps me from saying I want a gazillion dollars for it - I just won't find a buyer.

The more simple explanation is supply and demand. The supply of stocks is much less than the demand of stocks, then the price of stocks are going up. It's why the Hedge Funds urged holders of the stocks to sell their stocks.

The posters' responses were they were going to sell stocks, but they are going to keep one particular stock. When brokers limit the purchasing of the stock, and only allow selling the stock, this mechanism wipe out the stock demand from the market, and drove down the price of the stock.

Originally Posted by Anh_Minh

That's because one stock can be lent out several times.

Let's say Alice has a GME stock. Bob wants to short-sell, so he borrows Alice's stock and sells it to Carol. Now Carol has a GME stock, and as it happens, Daniel wants to short-sell. So he borrows Carol's stock and sells it to Elvira, Mistress of the Dark (I couldn't think of another name in E).

The more simple explanation is the duplicate count. Assume that the Hedge Fund Iron Triangle wants to buy a particular stock. FundA does not have the stock, so FundA borrows money from FundB and promises to return the stock when FundA has it, assuming buying it at the lower price at the future date. Then FundB does the same thing to FundC. If FundC purchases 1 stock, it would be counted as 2 stocks outstanding.

[scififan]

Originally Posted by AC-Phoenix

Just that I'm saying "They bought it with the money as a secondary objective, while the primary objective is destroying the hede for the lolz."


Also, unlike EU citizens (and I'm not even sure it's all of them), US citizens are mostly not protected against slapsuits, which don't require anything being illegal in the first place as their goal is damaging, or at least teaching the other party a lesson, using a court of law as an instrument.
Unlike what you might be used to, US citizens don't automatically get their lawyer's fees back from the opposing party, they have to pay them themselves, regardless of the result.

The public sentiment toward the current situation is "beating them at their own games." It means that the regulation and policy is written in favour of institutional investors. There are people saying same stuff as you, and they are not quoting any clause. The clause can be a double edged sword. It may ends up hurting both sides of the stock traders.

Investment Tuition 101: Bluffing through media outlets

The first investment lesson is to test investors' IQ and EQ, and teach investors to understand "news".

https://www.youtube.com/watch?v=8HXziyCvPNs

[Psyco Diver]

Originally Posted by Anh_Minh

Citadel's not just one of those hedge funds.
https://www.washingtonpost.com/busin...mestop-reddit/

(Also, one of the links I posted earlier aired suspicions that Citadel participated, and profited off, the short squeeze in a more or less illegal way.)


Unless you mean that RH unintentionally helped the Redditors due to a technical glitch, that's not what RH's CEO told Chris Cuomo.



Yeah, uh, about that...
https://twitter.com/mims/status/1355275464043081730

Don't worry, that will leave the news and get brushed under the rug

[AC-Phoenix]

Originally Posted by scififan

The public sentiment toward the current situation is "beating them at their own games." It means that the regulation and policy is written in favour of institutional investors. There are people saying same stuff as you, and they are not quoting any clause. The clause can be a double edged sword. It may ends up hurting both sides of the stock traders.

Investment Tuition 101: Bluffing through media outlets

The first investment lesson is to test investors' IQ and EQ, and teach investors to understand "news".

https://www.youtube.com/watch?v=8HXziyCvPNs

As Legal Eagle said, a court could rule in either side's favor.

Nevertheless, slapsuits don't require a chance of success or any illegality in the first place.
And if I were a lawyer working for the hedgefond, and some pissed CEO would ask me how we could exact revenge, I'd tell them that slapsuiting them would be an option. (Assuming they'll be able to afford it and waste the money.)
E:Assuming this wouldn't violate the bar's ethical standards, but that's a thing for US lawyers to figure out, not for someone who quit lawschool, and moreover, did so in another country.

[Cosmic Eagle]

Originally Posted by AC-Phoenix

You should be glad, as the people who did might have committed a crime, as shown above. The US has some strange laws where you can sometimes be sued there, even if you don't even live there.
Even if they can't though, your own country might still prosecute it, if the US asks for it, and it also constitutes a similar crime in your own. Really country dependant.

The especially dangerous part here is that a lot of people only did it to deliberately damage the hedge fond, which could actually make them liable. The mens rea might actually be fulfilled here.... And talking legal stuff, I suddenly rue having dropped out of law school.

How can I get sued there if I don't live there, have no assets there and have never set foot or intend to set foot there?

And it's not a crime in my home country.....How do you even prove intent if you say "I wanted to profit off the bubble like everyone else?"

If my home government did pursue a suit on a US private entity's behalf against a group of citizens and residents who bought in, it would be big news and they'll never hear the end of it. Plus it'll damage the image of neutrality they cultivate so that entities of all countries can freely trade there



At any rate, by that logic, the same investors talking about shorting vaccine makers at the start of the pandemic including companies who were the sole vaccine discovery player in certain countries ought to be jailed for attempted murder

Also good luck correlating Redditor anonymity with actual IRL identity what with so many of them posting over tor or VPN

[Psyco Diver]

The stock is crumbling now, time will show the actual results of all this. It's been interesting to watch that's for sure

[Anh_Minh]

Originally Posted by AC-Phoenix

Just that I'm saying "They bought it with the money as a secondary objective, while the primary objective is destroying the hede for the lolz."


Also, unlike EU citizens (and I'm not even sure it's all of them), US citizens are mostly not protected against slapsuits, which don't require anything being illegal in the first place as their goal is damaging, or at least teaching the other party a lesson, using a court of law as an instrument.
Unlike what you might be used to, US citizens don't automatically get their lawyer's fees back from the opposing party, they have to pay them themselves, regardless of the result.

I really don't think they want to fight that battle. First because it'll immediately become political. If they try it, there's a real chance of a bipartisan effort to get their scalps.

Second, because even if they win, what do they win? Intimidated retail investors take their stakes back and keep it under mattresses? The Wall Street guys don't want that. More regulation? The Wall Street guys really don't want that.

[scififan]

Originally Posted by Psyco Diver

The stock is crumbling now, time will show the actual results of all this. It's been interesting to watch that's for sure

Can you interpret the figure? Based on unusual high volume from the premarket, someone from Reddit claimed that the specific Captial is gambling, like Midari Ikishima(you know, that person whose idea of pleasure is increasing her own risk). The claimed motive is "Selling stocks to drive down price and buy back stocks later?" The use of technical analysis skill may be handy. At least, some investors claim that technical analysis can identify unusual pattern. Could it be other factors that influence the figure at the day's opening?

[AC-Phoenix]

Originally Posted by Anh_Minh

I really don't think they want to fight that battle. First because it'll immediately become political. If they try it, there's a real chance of a bipartisan effort to get their scalps.

Second, because even if they win, what do they win? Intimidated retail investors take their stakes back and keep it under mattresses? The Wall Street guys don't want that. More regulation? The Wall Street guys really don't want that.

The goal of a slapsuit isn't to win in the first place.

[Sheba]

Please show us in the international law where a corpo can sue a private citizen from a foreign country. If a hedge fund want to sue Hans Gruber on the suspicious he have been holding a GME stock for the sake of manipulating the market, I am sure Aunt Merkel would have a few stern words for Joe.

[Anh_Minh]

If anyone still cares, here's a video that (at the end) explains why RH may have had legitimate reasons to stop the GME trades. It's also pretty good at explaining the context of the whole thing... if you speak French.
https://www.youtube.com/watch?v=EGs5kYYw6d8

If you don't, the thing with RH is this:
between the time an order is placed on the RH platform, and the time money and stock change hands, days can pass. In those days, stuff can happen that makes one of the parties of the trade unable to deliver on their end. (Like a bankruptcy, for example.) If that happens, RH is on the hook for what was ordered on it. Because of that, they must, by law, put money on a margin account. How much money depends on the volume of the trade and the volatility. Since the GME stock was very volatile, and being traded in large volumes, the margin requirement exploded. RH may not have had the money to fill that margin account in those conditions.

Originally Posted by AC-Phoenix

The goal of a slapsuit isn't to win in the first place.

No, it's to intimidate, and like I said, I don't think they want that either. And they have a lot to lose if they try.

Originally Posted by Sheba

Please show us in the international law where a corpo can sue a private citizen from a foreign country. If a hedge fund want to sue Hans Gruber on the suspicious he have been holding a GME stock for the sake of manipulating the market, I am sure Aunt Merkel would have a few stern words for Joe.

Considering the fact we're talking about trades made in US dollars on an American platform on the New York State Exchange, I'm not sure international law is all that relevant. Sure, they won't try to arrest people in foreign countries, but fines and seizures of assets may be on the table. If they can prove a crime was committed, of course.

[Jaden]

Originally Posted by Anh_Minh

If anyone still cares, here's a video that (at the end) explains why RH may have had legitimate reasons to stop the GME trades. It's also pretty good at explaining the context of the whole thing... if you speak French.
https://www.youtube.com/watch?v=EGs5kYYw6d8

If you don't, the thing with RH is this:
between the time an order is placed on the RH platform, and the time money change hands, days can pass. In those days, stuff can happen that makes one of the parties of the trade unable to deliver oh their end. (Like a bankruptcy, for example.) If that happens, RH is on the hook for what was ordered on it. Because of that, they must, by law, put money on a margin account. How much money depends on the volume of the trade and the volatility. Since the GME stock was very volatile, and being traded in large volumes, the margin requirement exploded. RH may not have had the money to fill that margin account in those conditions.

Yeah, I heard basically the same from WeBull, although much of this burden is outsourced to the clearing houses, and they passed the buck to those. But it's contradicted by what the Robinhood CEO said in interviews, and the messages they gave to users like "we're limiting purchasing to protect our customers"

I guess the truth may be just that the companies were afraid to admit to what is basically a liquidity issue, even though to me that's totally understandable.

[AC-Phoenix]

My personal opinion on whether shortening a Stock is illegal btw:
No.

When you are allowed to bet that a stock goes up (i.E. normal stock trading), you should as well be allowed to bet on a stock going down.

What needs to be examined imho is the 140% thing.

The real question is: Did any of the reddiders who started this short the hedgefond at the same time? Because that would sound very illegal .

As for whether betting on GameStop failing is justified: Given, the pandemic, yes. Gamestop isn't even allowed to open in my country at the moment, and the same goes for Germany.

A lot of people, myself included, also haven't bought physical copies of games even before that, as they tend to bulk up (book)shelves. So, let's be honest here: As sad as it is: How much will Gamestop be able to compete against Steam, and others in the future?
Their best bet would be selling Steamkeys and ask steam for a brokerage.

Also more detailed analysis from Legal Eagle:
https://www.youtube.com/watch?v=9vd3iZDN_OI

Originally Posted by Anh_Minh

No, it's to intimidate, and like I said, I don't think they want that either. And they have a lot to lose if they try.

It's not just to intimitate, but also cause actual damage in the form of legal fees, and generally waste the other party's time.
It's something most, or at least some, of us Europeans are protected against, since the losing party of a lawsuit has to pay the winning party's lawyer fees.

[GDB]

It's not even just about physical vs digital, though that's done a number on them.

They offer literally zero over Best Buy, Target, Amazon, or Walmart. In fact, Target you can get it cheaper due to RedCard or their usual pre-order bonuses for like a $5 gift card or whatever when you pick up the game.