Investors betting against GameStop (GME) have, to quote John Goodman’s character in “The Big Lebowski,” entered a world of pain.
Short-sellers with a bearish position in GME were on track to lose more than $7.8 billion today, according to research from S3 Partners.
Ihor Dusaniwsky, the managing director of predictive analytics for S3, said in a tweet that GameStop short-sellers have recorded nearly $20 billion in losses so far in 2021.
The shorts have been squeezed hard as GameStop continues to surge. It was up more than 80% on Friday and has now soared nearly 1,800% this year.
Short-sellers have been forced to buy back stock that they borrowed and sold because they need to return the shares fast or risk losing more money as the stock climbs higher.
Dusaniwsky pointed out in another tweet that movie theater chain AMC (AMC), also a target of short-sellers, is inflicting pain on those betting against it — although the losses aren’t nearly as dramatic. Shorts had lost more than $210 million Friday and nearly $525 million this month.
It’s been a tough week for the bears. Citron Research, a firm that made a name for itself by recommending stocks to short and was attacked online by the Reddit WSB crowd, announced Friday it is no longer going to point out stocks it thinks are overvalued and will instead focus exclusively on highlighting buying opportunities.
Senator Elizabeth Warren of Massachusetts is asking the U.S. Securities and Exchange Commission to look into why GameStop stock has fluctuated in price so wildly in recent days, soaring from its usual $20 a share to over $440 at one point.
In a letter on Friday, Warren called on the SEC to prevent “these and future incidents of potential market manipulation.” She asked the regulators to investigate whether securities laws were violated by hedge funds shorting GameStop stock or Redditors buying up shares to inflate its price.
“These wild fluctuations are just the latest indication that many private equity firms, hedge funds, and other investors, big and small, are treating the stock market like a casino,” Warren wrote.
Google took down tens of thousands of negative reviews about the Robinhood app from the Google Play Store from a flood of upset users, who encouraged each other to give the trading platform a one-star review. The trading app restricted trading on several stocks, including GameStop.
A Google spokesperson told CNN Business on Friday that it has long-standing systems that detect spam and abuse of its app reviews, including detecting coordinated or inorganic reviews. Its public guidelines state that users cannot “post fake reviews intended to boost or lower ratings.”
In a blog post last year, Google said ratings and reviews can violate its guidelines when they are “meant to manipulate an app’s average rating or top reviews” — whether that’s positively boosting an app’s average rating to five stars or giving it one star “to influence it negatively.”
On Friday, White House Press Secretary Jen Psaki pointed reporters to a statement from Securities and Exchange Commission regarding the GameStop frenzy on Wall Street, saying, “We of course respect the role of regulatory agencies.”
“I know the SEC issued a new statement earlier this morning, or just before I came out here, and I certainly point you to that and others to that. And we of course respect the role of regulatory agencies,” Psaki said.
She continued: “They are closely monitoring the situation, but it’s under their purview at this point in time, and I guess part of our education can be conveying to people that the SEC is the regulatory body that would oversee this and can speak to it further.”
Earlier today, the SEC said it will “closely review” actions by trading platforms to restrict transactions.
Bitcoin prices are once again booming, but some Robinhood users may not be able to fully participate in the rally.
Robinhood announced Friday it turned off its instant buying power feature for crypto due to “extraordinary market conditions.”
As its name implies, the feature gives users instant access to cash that was either deposited from a bank account or generated from stock transactions. It’s available to Robinhood Gold and Robinhood Instant customers.
Customers can still buy bitcoin and other cryptocurrencies by using funds that have already settled, Robinhood said.
“We’ll keep monitoring market conditions and communicating with our customers,” a spokesperson said in a statement.
The Securities and Exchange Commission said it will “closely review” actions by trading platforms to restrict transactions, following moves by Robinhood and others to limit the trading of GameStop and other stocks.
“The Commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities,” the agency said in a statement.
“In addition, we will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws.”
The statement reflects the mounting pressure for financial regulators to step in following the trading frenzy led by a group of reddit users that’s spelled disaster for many hedge funds and short sellers.
The Reddit group WallStreetBets has been taking aim at short-sellers — and now one of their main targets, Citron Research, is getting out of the game:
Citron is an investing firm that has for 20 years published reports about stocks it thinks are overvalued, and could be good short-selling candidates. It became a chief target of the WSB crowd for its GameStop call.
Just last week Citron’s founder Andrew Left called GameStop a “failing mall-based retailer” and mocked traders fueling the stock’s rise, predicting a crash to $20. Enter Reddit, and well, you know the rest: The stock closed above $197 on Thursday. Left had already given up on shorting GameStop, citing harassment by the stock’s backers.
And now Citron won’t publish short-selling research at all.
According to Left’s video posted Friday morning, the firm is shifting focus because he founded Citron to “be against the establishment,” but realized “we’ve actually become the establishment.”
US stocks opened lower on Friday, sliding amid chaos in the market and more corporate earnings.
Meanwhile, Reddit favorite GameStop (GME) is back on top, soaring some 100% at the opening bell after trading platform Robinhood reversed its restriction on trading the stock. Meanwhile, analysts are beginning to worry that the short-squeeze in GameStop and other stocks is affecting liquidity elsewhere in the market.
CNN’s Chris Cuomo speaks with Vlad Tenev, CEO of the stock-trading app Robinhood, after the company barred traders from buying shares of GameStop promoted by WallStreetBets, a popular subreddit for investors.