Robinhood App Exposes Hedge Funds And Commits Suicide

Robinhood App Exposes Hedge Funds And Commits Suicide

Robinhood App Exposes Hedge Funds And Commits Suicide

The Robinhood App is all in the news. The app has been used by young traders to build portfolios through brokerage fee free trades. The app’s motto is “We’re on a mission to democratize finance for all.” Then the GameStop short squeeze happened and the hedge fund elites were exposed and Robinhood committed suicide.

Most of us who have savings and retirement accounts are in indexed funds. Our funds follow closely along with the returns of the Russell 2000, Nasdaq or S&P. We want our money as safe as possible. But, young folks, who are not risk adverse and can afford to start again, may choose to invest in hedge funds to get higher returns on their investments.

Hedge funds need managers. If Wall Street bankers are considered Masters of the Universe, hedge fund managers are Alpha Masters. Yes, there is a hierarchy.

The Robinhood App was founded in 2014 by former Stanford University roommates and 78% of the app users are under the age of 35. They like to invest in brands they know. Which brings us to GameStop.

I haven’t been in GameStop in ages and didn’t even know it existed anymore. When my son was a teenager and I was in my early gamer days, we bought hard copies of games the day they came out. Apparently, some people still do.

Reddit users found out that hedge fund managers were selling stocks in GameStop, Blackberry and AMC movie theaters short. When you sell stocks short, you are betting that the stock price is going to go down when you “borrow” the stocks. The Reddit users started buying the stocks, driving the stock price higher and putting a short squeeze on the hedge fund managers. The hedge fund managers were unhappy. This does not happen to the Alpha Masters of the Universe. They don’t get squeezed. They squeeze everyone else. They were not happy:

Short sellers betting against mall retailer GameStop have lost $5.05 billion mark-to-market in 2021, according to a note published yesterday by S3 Partners when the stock was 16% higher in intraday trading.1 Up over 600% since the start of the year on a surge of retail investor interest and resulting short squeezes, GameStop closed up 93% yesterday and is set to continue its mind-bending run higher today.
One of the biggest GameStop short seller “victims” is Melvin Capital, a hedge fund that started the year with $12.5 billion in AUM and lost almost 30% through Friday last week, according to The Wall Street Journal.2 It announced an emergency infusion of $2.75 billion from fellow hedge funds Citadel and Point72 on Jan. 25, and told CNBC today that it closed out its short position in GameStop on Tuesday afternoon.

How dare these little day traders beat the Alphas. Just like Donald Trump exposed the rigged system in D.C., the Reddit kids exposed the rigged system in investing. The Alphas whined and cried and stomped their Gucci’s. Starting January 27, Robinhood responded to the hedge fund managers by restricting the individual investors ability to make moves.

Senator Elizabeth Warren, who has always claimed to be on the side of the little guy but has never actually been, wants more regulation:

Democratic Sen. Elizabeth Warren of Massachusetts on Thursday called for the Securities and Exchange Commission to do more to deal with “market manipulation,” with her comments coming as the stock market has seen huge moves lately for GameStop GME, -44.29% and other heavily shorted stocks. “The bigger issue for me is the SEC’s inability and unwillingness to deal with market manipulation,” Warren said in a CNBC interview, referring to the Securities and Exchange Commission. “To have a healthy stock market, you’ve got to have a cop on the beat. That should be the SEC. They need to step up and do their job.” Warren also said “there’s going to be an investigation,” and the SEC on Wednesday said it’s monitoring the market’s volatility.

It’s cool when the Alphas manipulate the market, but it’s jank when the average guy does it. Market manipulation for me, but not for thee.

The Robinhood fiasco was picked up by Hot Air:

Robinhood has already been hit with a class action lawsuit over the shutdown:

The lawsuit, filed in the Southern District of New York on Thursday, alleges that the app “purposefully, willfully, and knowingly removing the stock ‘GME’ from its trading platform in the midst of an unprecedented stock rise, thereby deprived [sic] retail investors of the ability to invest in the open-market and manipulating the open-market.”

And, AOC has weighed in. For the first time ever, on the right of a subject:

I told you that the Robinhood App committed suicide. Here is why: First, they threw their clients under the bus when they stopped the trading, even temporarily. That will destroy brand loyalty instantly. They crumbled like a decade old fruitcake under the pressure of the hedge fund managers. Dave Portnoy of Barstool Sports explained it best. He speaks at about 15 minutes into the video:

Remember when the Democrats changed the rules for the 2020 election in the middle of the game. That’s exactly what Robinhood did. I doubt the Robinhood creators will go to jail, but they have committed suicide for their brand. Who will ever trust them again?

One more thing, stay away from REITS. Don’t ask.

Featured Image: Mark Anderson/Flickr.com/cropped/Creative Commons Attribution 2.0 Generic (CC BY 2.0)

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21 Comments
  • GWB says:

    It announced an emergency infusion of $2.75 billion from fellow hedge funds Citadel and Point72
    Wouldn’t this – if viewing the individual investors as competitors – legally be a trust action? Sending money to a competitor so you can keep out a different group of competitors? It’s the same as price-fixing.

  • GWB says:

    That will destroy brand loyalty instantly.
    Along with the breach of contract. Hmmm, I could have made $2,000 except they stopped my trade? Fine, here’s my lawsuit for $2,000 plus.

  • Joe Rywelski says:

    TAAMATASS

    And watch out for the real danger, which is Azerbaijan-on-Armenia drone-delivered mortar rounds (also favored by ISIS and, you will note, why the USMC got rid of their tank battalions). Close the borders.

    But yes, gird your loins about the stock market, wtf ever.

  • Erisguy says:

    My G*D, Carlson is actually making sense. I’ve had too much to drink. Somebody slipped me a Micky. The skies are purple and the fish are in the trees.

  • Churchsox says:

    What I’m hearing is that when there’s a bit of manipulation afoot, Mr. Ackman is a good early warning. Do we know of any others? Seems that by listening to the TV appearances by a few Wall Streeters, we could take advantage of these big, well-organized scores.

  • Dave Hunter says:

    After the felon Kevin Clinesmith got zero jail time for a forgery that contributed to the FBI’s illegal spying on Carter Page, does anyone really think those who conspired with Robinhood’s executives to rob their customers will even be charged with any wrongdoing? Does anyone remember a guy named John Durham?

    If we want justice we’re going to have to get it the old fashioned way, by demonstrating by the millions, and that day is somewhere in the future as the sheep in America are not yet awake to what is happening to the country.

  • Milwaukee says:

    Tucker said Robinhood was selling data about trades to the hedge funds. Ah. Robinhood offered “free” trades. Nothing is free. See Facebook. If it’s free, you and your data are being sold. You are the product.
    This news now makes more sense as to how Robinhood could even exist.

    • fredric ohr says:

      Robinhood directs trades to market makers in return for a share of the market makers’ spread. This is a typical business arrangement so that both parties earn a profit and retail customers pay no additional fee.

  • Richard says:

    So Robinhood.com turned out to be the Sheriff of Nottingham but who is King John. Tech oligarchs, Wall Street, the Feds?

  • Willy says:

    “But, young folks, who are not risk adverse and can afford to start again, may choose to invest in hedge funds…”

    Great article, but the quote above makes hedge funds sound like they, too, are democratic and open to the little guy. No, you have to have a high net worth to buy into a hedge fund. They are not available to the little guy. This is another way in which the system is rigged, stacked against the regular Joe who is just trying to make a living, and why the redditors’ actions were such an affront to the elites.

  • Rather Not Say says:

    You’re wrong about Robinhood’s customers. The people using the app are not robinhood’s customers; they are robinhood’s product. Robinhood’s largest customer, at over $200mm/year is…drumroll…Citadel. What is Citadel getting for all that money? The order flow. And if Citadel is paying hundreds of millions for the order flow, you can bet it isn’t to give the app’s users the absolute best price possible.

    So Robinhood did right by their customers…which are not the App’s users. All their ‘democratize finance’ BS is just to lure the rubes into the rigged casino. I hope the users learn that.

    • fredric ohr says:

      You are correct that Citadel and other market makers pay Robinhood for order flow. If Citadel does not consistently provide best execution, Robinhood is free to turn to other market makers to maintain their competitive position with other retail trading platforms. So, theoretically, Citadel should be providing best execution. In a competitive world, they would lose business if they did not do so.

  • Mongo says:

    Anyone stupid enough to support Democrats after this…..

  • lgv says:

    You have failed to note the reason for Robinhood sacrificing their clients in order to help Melrose. One only has to look at how Robinhood makes money while completing transactions for free. Wallstreet is Robinhood’s biggest revenue source, not the app users. They had to protect their deal with traders, including Melvin’s other business.

    • fredric ohr says:

      No. They ran out of cash to meet regulatory requirements. Once they got a $1 billion loan, the platform reopened to new buys.

  • Rick Caird says:

    Google is trying to stop the charade by deleting bad reviews of Robin hood. I laugh at Google. Do they think their puny little efforts will stop the deluge of word of mouth.

  • fredric ohr says:

    You reached the same erroneous conclusion that I did initially, that Robinhood caved under pressure. Not true. Following clearly prescribed rules issued under Dodd-Frank, Robinhood ran out of cash collateral to meet regulatory requirements due to the huge order imbalances. As a result, they suspended the OPENING OF NEW POSITIONS in GME until they could get a capital infusion. This was required by law.
    They were able to get a $1 billion loan and then reopened the platform to accept new buy orders for GME.
    Citadel is one of the principal market makers used by Robinhood and they pay Robinhood a percentage of their market maker spread, a standard pay for flow arrangement. As prices rose, per share spreads increased so both Citadel and Robinhood were making money hand over fist. Hence the willingness of lenders to alleviate Robinhood’s regulatory liquidity problem. Robinhood customers should read the fine print on securities law and not be angry at Robinhood.

  • Rad4Cap says:

    “Reddit users found out that hedge fund managers were selling stocks in GameStop, Blackberry and AMC movie theaters short. When you sell stocks short, you are betting that the stock price is going to go down when you “borrow” the stocks. The Reddit users started buying the stocks, driving the stock price higher and putting a short squeeze on the hedge fund managers. The hedge fund managers were unhappy. This does not happen to the Alpha Masters of the Universe. They don’t get squeezed. They squeeze everyone else.”

    So you believe that companies recognizing the fact that certain stocks are OVER-valued (ie the stocks is worth more than the company itself) are “Alpha Masters of the Universe” who are engaged in “betting” so as to “squeeze” people?

    Even MARX wasn’t THAT financially illiterate – and your practicing HIS class envy politics here!

  • O-5 says:

    OK I’m asking. Why not REITs

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