Melvin, a major GameStop short-seller, bet the company’s stock would fall. But on January 11, GameStop announced new board members who could help it with digital selling. That caused a rage on Reddit, namely subreddit WallStreetBets, which catapulted GameStop’s stock by over 1,600%.
Hedge funds such as Melvin with huge short positions in GameStop and other stocks targeted by WallStreetBets were burned. The Reddit group specifically targeted stocks that had gone heavily short. At one point, GameStop had more short-term interest rates than stocks in the market.
The Wall Street Journal first reported Melvin’s losses.
Founded by Gabe Plotkin, Melvin Capital started the year with approximately $ 12.5 billion in assets. It ended the month with more than $ 8 billion after receiving pledges from current investors for more capital in the last days of the month, the source said.
Last week, Citadel, a hedge fund owned by billionaire Ken Griffin, provided the company with a bailout of more than $ 2 billion.
“The liquidity of the fund’s portfolio is strong,” said the source. “Use of leverage is at its lowest level since Melvin Capital was founded in 2014.”
Melvin found herself at the heart of the GameStop saga after Robinhood suspended trading in the stock and several others on Thursday. The move was followed by an onslaught of backlash from individual investors, such as Reddit, who felt Robinhood was yielding to pressure from Wall Street and requests from hedge fund managers.
The frustration of Robinhood users was soon followed by a class action lawsuit against the stock trading app over its decision to restrict trading in stocks like GameStop.