A group of amateur stock traders on the “wallstreetbets” subreddit (r/wallstreetbets) recently organized an effort to manipulate the stock of poorly performing companies in an effort to punish short-sellers from major hedge funds. The idea was to show that everyday people could manipulate stock and make money the same way that Wall Street insiders do. Unfortunately, the services that these regular people used, such as Robinhood Markets, had other ideas.
Robinhood Markets, Charles Schwab, TD Ameritrade, M1, Public, Webbull, and other services unjustly froze or limited the trading of the targeted companies. The end result was one set of rules for the Wall Street crowd and another for normal people. While large firms were free to rake in tremendous profits, regular people were left in the dust. If you’re a customer of a stock trading service and you feel that you were unfairly shut out of trading, Michael Brandner is now accepting claims for review to determine if you may be eligible to seek damages and restitution.
Which Stocks Did Wallstreetbets Target?
Many of the companies targeted by r/wallstreetbets were chosen because they are expected to perform poorly or fail in the near future. Some of them were chosen for nostalgic reasons. Most importantly, these companies were also targets for hedge fund managers looking to short-sell.
Two examples of the companies targeted by r/wallstreetbets are GameStop (GME) and AMC Entertainment (AMC). Videogame retailer GameStop was targeted since game purchases have been shifting to digital downloads for years, while sales of boxed games have dwindled. Movie theater giant AMC Entertainment was chosen because its business was struck hard by the COVID-19 pandemic and recovery seems unlikely in the immediate future.
Other companies targeted by r/wallstreetbets include BB Liquidating (what’s left of Blockbuster Video), BlackBerry Limited (BB), NIO (NIO), Nokia (NOK), Tootsie Roll Industries (TR), and more.
Wallstreetbets vs. Hedge Fund Short-Sellers
The actions of day traders from r/wallstreetbets had a major impact on short-sellers from billion-dollar funds. Short-sellers make money when stock prices go down. The r/wallstreetbets crowd caused prices to soar, allowing regular people to profit while major hedge fund managers lost billions.
According to analytics firm Ortex, short-sellers have lost more than $70-billion in 2021. Business Insider claims that short-sellers lost more than $5-billion on GameStop alone. In some cases, large hedge funds required multi-billion dollar cash infusions in order to stay liquid. Some people have cited the r/wallstreetbets vs. short-sellers situation as a rare case of Main Street defeating Wall Street.
Why Did Wallstreetbets Flock to Robinhood Markets?
One of the most appealing aspects of services like Robinhood Markets is that it allows people to purchase options in addition to buying shares. Previously, options were difficult for ordinary people to purchase and mostly something professional traders dealt with.
What Is Short-Selling?
Short-selling is the practice of borrowing stock with the expectation of its price dropping. Short-sellers sell the shares that they’ve borrowed, wait for the price to fall significantly, repurchase the shares, return the shares to the original owner, and keep the profits. Short-selling is a common practice used by hedge funds.
What Is a Hedge Fund?
A hedge fund is a type of investment fund that’s typically large and mostly liquid. The size and liquidity of hedge funds allow the owners to engage in complex and risky transactions, such as short-selling. Even if the riskier actions fail, the size and diversity that most hedge funds have usually help keep them profitable.
What Is a Short Squeeze?
A short squeeze occurs when there is a lack of supply and an excess of demand for a stock. When short-sellers experience a short squeeze, they are usually forced to buy additional shares to cover their losses. The additional pressure on the stock normally results in more price increases.
For example, a call option allows the purchase of a stock at a certain price and on a certain date. Let’s say Louisiana Intergalactic Fishing Rods is currently $1 a share and you’re confident that it will continue to perform well. You can purchase an option for 100 shares on June 1 at $5. Now imagine the price spikes up to $20 heading into June, you can sell your options at a profit prior to June 1 or wait until June 1 and collect your 100 shares.
By allowing regular people to purchase options, Robinhood Markets gives people great flexibility with their investments. It’s also useful for when a group of people attempt to coordinate purchases (r/wallstreetbets has more than two-million subscribers, for example).
What Did Robinhood Markets Do to Its Customers?
Robinhood Markets chose to temporarily remove GameStop from its service. This prevented customers from buying and selling shares or options. However, professional traders still had access to shares. The action prevented regular people from maximizing profits, while professionals were able to recover their positions.
While day traders and professionals are playing the same game, companies like Robinhood Markets made it so that they’re playing under different rules. Motherboard claims that more than half of Robinhood’s 13-million customers own GameStop stock. The company’s actions have put more than six-million people at a financial disadvantage.
An email to Robinhood customers noted, “In light of recent volatility, we are restricting transactions of certain securities to closing only.”
Other companies behaved similarly, though most not quite as drastically, as Robinhood. For example, Charles Schwab, TD Ameritrade, and Wells Fargo put restrictions on the stocks targeted by r/wallstreetbets. In a statement to Charles Schwab customers, the company said, “The bottom line is that clients are still able to trade in GME, but we’ve put some restrictions on certain types of transactions in the interest of helping mitigate risk for our clients.”
How Does the U.S. Government Feel About Robinhood’s Actions?
Politicians on both sides of the aisle have expressed concern over Robinhood shutting its customers out of GameStop trades. Democrat Congressperson Alexandria Ocasio-Cortez, who is a member of the House Financial Services Committee, demanded to know the reason behind Robinhood’s action. Many people were surprised that Republican Senator Ted Cruz said he fully agreed with her.
Republican Congressman Paul Gosar wrote a letter to Acting Attorney General Monty Wilkinson calling for an investigation of the ties between Melvin Capital Management and Robinhood. He claims that Robinhood blocked its customers from GME after Melvin lost billions attempting to short it. Furthermore, his letter claims that Melvin’s parent company, Citadel LLC, gave Robinhood Markets 40% of its revenue.
A number of financial institutions that halted or restricted the trading of stocks use Apex Clearing as a clearing house. Webull CEO Anthony Denier told The Wall Street Journal that the company was forced to halt the trading of GME and AMC shares because Apex Clearing suddenly changed the collateral requirements. There’s speculation that bigger and richer players organized actions to counter the efforts of r/wallstreetbets.
Between the alleged actions of Citadel LLC and Apex Clearing, it appears that extremely large and rich companies colluded to defeat regular people. Wall Street banded together to beat Main Street.
Were You Taken Advantage of By Robinhood Markets? Contact Mike Brandner Today.
Mike Brandner Injury Attorneys has long been dedicated to standing up for regular people. Traditionally, this has meant combating deceptive insurance companies. However, we’re ready to fight financial institutions such as Robinhood Markets on your behalf.
It’s appalling that this company and others like it prevented everyday people from making money while bowing to the wishes of billion-dollar companies. We will do everything possible to make sure that you receive justice for Robinhood’s reprehensible actions.
Our team is available 24/7 to take your call at the numbers listed below. You can also reach us through the Internet via LiveChat and secure form. Do not let Robinhood’s unfair and unscrupulous actions stand. Contact us today so that we can fight back on your behalf.