How Chicago Plays A Central Role In Today's Shitshow. And How Robinhood Could Not Possibly Be More Full Of Shit.

Crains Chicago - The first sign of trouble for hedge fund wunderkind Gabe Plotkin came in late October: A poster on Reddit’s popular wallstreetbets forum was taking aim at his wildly successful investment firm.

“GME Squeeze and the demise of Melvin Capital,” wrote the user, Stonksflyingup, referring to stock ticker of GameStop Corp. and Plotkin’s $12.5 billion firm. Before long, veryforestgreen weighed in: “Melvin Capital New Short Attack.” Then, greekgod1990: “Melvin vs WSB! And GME to the moon.”

So it was that the tables turned on Wall Street—and a hedge fund star suddenly found himself at the mercy of the day-trading Reddit bros who have become one of the most powerful, if improbable, forces in the stock market today. The attack on Plotkin’s six-year-old Melvin Capital shifted the balance of power in ways that would have seemed unimaginable only months ago. By Wednesday, the firm had capitulated to the amateurs and covered the GameStop short.

So steep were the losses—about 30% through last week—that Melvin on Monday turned to billionaire hedge fund founders Ken Griffin and Steve Cohen, Plotkin’s former boss, to shore up the firm.

As of Tuesday, the fund’s losses had increased even with the portfolio repositioning, though investors wouldn’t say by exactly how much for fear of angering the money manager, which they expect can still fight its way back.

Quick point on the whole futures/options game that has confused the fuck out of the majority of people that arent pro's or are not well versed in the stock market like myself.

This was the best explanation I found.

The name Ken Griffin got thrown all over the place today. 

For people in Chicago, that's not uncommon. As Carl and I have covered several times here in the past, Griffin was thought of as a billionaire who loved Chicago, and looked out for its people.

But not after today muchacho. 

Today his name was mentioned in the same sentence as manipulation, illegal activity, grand larceny, and jail. 

How did Ken Griffin exactly play a role in all of this? Crains did a great job setting the stage-

The shorts that were listed in Melvin’s regulatory filing from the third quarter all rocketed in recent weeks. Names include Bed Bath & Beyond Inc., iRobot Corp. and GSX Techedu Inc. GameStop, the stock that seemed to set off the short squeeze, soared 634% in the month through Tuesday. That night Elon Musk tweeted a link to the Reddit thread with the caption “Gamestonk!!” And by mid-Wednesday in New York, the stock more than doubled again.

Investors caught in a short squeeze can close out bets and eat their losses, or try to ride out the price surge—typically requiring they put up more money.

Melvin’s cash infusion was almost unheard of in hedge fund land. Griffin, his partners and the hedge funds he runs at Citadel threw in $2 billion and Cohen’s Point72 Capital Management, which already had about $1 billion invested in Melvin, ponied up another $750 million.

Cohen, one might argue, was bailing out his own investment. For Griffin, it was a rare opportunity to invest in a talented manager on the cheap. Both firms got a minority revenue share from the firm for stepping in.

Late Tuesday, Cohen broke his usual habit of only tweeting about his New York Mets. “Hey stock jockeys keep bringing it,” he wrote on the social media platform.

So Griffin did what Griffin always does, takes advantage when he sees opportunity. It’s what’s made him a billionaire. So we thought-

Then came January, when Melvin first became aware that a Reddit crowd had put a target on the firm’s positions, ramping up an attack on GameStop and other shorts.

Melvin’s losses mounted in January, and after they passed 15% last week, it had conversations with investors and got commitments of about $1 billion for Feb. 1. By the end of last week, losses had mounted to about 30%.

On Monday morning, Plotkin reached a deal with Point72 and Citadel to provide him with more liquidity to help put Melvin back on the offensive. That Cohen would step in made sense, given his longstanding relationship with Plotkin—and an initial investment of about $200 million in the firm that had grown to about $1 billion.

Griffin, who started Citadel in 1990, has a history of swooping in when others are in distress. He’s hired teams or took on assets from hedge funds such as Sowood Capital Management, Visium Asset Management and Amaranth Advisors after they imploded. He may also have welcomed the chance to invest in Plotkin’s fund. Melvin generally manages money for charitable organizations like endowments and foundations.

Investors have been expressing faith that Plotkin will climb out of this hole.

Griffin said Monday that he and his partners “have great confidence in Gabe and his team.” Cohen called him “an exceptional investor and leader.”

A person familiar with the thinking inside Plotkin’s firm said one lesson is clear: Don’t leave a trace and only buy put options over the counter.

Fast forward to this afternoons debacle and it was clear that not only did Griffin play a role in Melvin’s bailout, but he also allegedly doubled down on the shorts, which is fuckin wild, unless you know something everybody else doesn’t 

and then ensured that Robinhood’s retail clients, which Citadel manages a hefty transactional load for, wouldn’t be able to continue buying.

Extremely fucked up to put it lightly. A major conflict of interest to say the very least.

Just a real scummy move only somebody with zero fear of consequence would have the balls to pull.

I used to look up to this guy and talk about what a boss he was but turns out he’s just a shade ball.

Then after the closing bell there was news of a class action lawsuit filed against Robinhood out of good old Naperville, Illinois.

Crains Chicago - Robinhood Markets was hit by at least two customer lawsuits after restricting transactions on stocks including GameStop Inc. following a frenzied runup driven by Reddit-inspired traders.

Robinhood was named as a defendant in federal lawsuits filed in Manhattan and Chicago on Thursday.

In the New York suit, Robinhood user Brendon Nelson, of Massachusetts, said the company removed GameStop from its trading platform in the midst of an “unprecedented stock rise,” depriving individual investors of the ability to invest and manipulating the market. The decision was a breach of its customer agreement and was in violation of financial industry rules, according to the complaint.

In the Chicago suit, user Richard Joseph Gatz, of Naperville, Illinois, said the halt of trading in Blackberry, Nokia and AMC Theatres “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,” Gatz said. “Plaintiff is unable to get fair market value for his options contracts,” and “if the stocks are not allowed to be trading it is likely that plaintiff will take a financial loss solely due to the defendant’s behavior and manipulation of their trading platform.”

Robinhood didn’t immediately respond to a request for comment on the suits.

Then around 6pm Robinhood FINALLY decided to crawl out from under their bed and address their millions of fucked over and furious clients with this half ass sorry excuse for an explanation email

Then their little puppet bitch of a CEO went on CNBC with his tail between his legs

Saying there’s zero liquidity issues… Even though Forbes reported the opposite.

Just absolute insanity and the worst part is the 99% feels helpless because we pretty much are.

In all honesty nobody’s done a better job at covering this from the jump than Dave. Pundits, experts, analysts. He’s called it straight as he usually does too.

Who would have thought?

p.s.- Also, who would have thought?