back to article Robinhood plays Sheriff of Nottingham as it pauses GameStop, AMC, BlackBerry etc stock sales, gets sued

The populist online investor uprising to punish Wall Street traders by propping up shorted stocks hit a wall on Thursday when retail brokerage firm Robinhood announced that customers could, for now, sell but not buy eight turbulent securities. "In light of recent volatility, we are restricting transactions for certain …

        1. Claptrap314 Silver badge

          Re: "you almost had me murdered three weeks ago so you can sit this one out"

          So do the many threats on FB & Twitter to kill conservatives count for this conversation or not?

          Senator Ted Cruz never endorsed such a thing. AOC is no Joan of Arc.

          1. low_resolution_foxxes Silver badge

            Re: "you almost had me murdered three weeks ago so you can sit this one out"

            Left wing nut jobs have been threatening to f*** or kill Thatcher for nearly four decades. What is bizarre is that it's considered acceptable and not a real threat. There is a real double standard here, when it comes to left and right wing fruitloops, the media often lets fringe Labour lunatics get away with it "because they're nice people", no they are not.

          2. Anonymous Coward
            Anonymous Coward

            Re: "you almost had me murdered three weeks ago so you can sit this one out"

            Of course they do. Don't play the snowflake martar.

            As for Cruz, didn't you see his call to arms speech?

      1. Pascal Monett Silver badge

        Um, you remember the insurgents were chanting "hang Pence" ?

        They weren't there for tea and biscuits.

        Let's see how you take when some of your colleagues openly welcome your murder while a mass of terrorists are trying to get at you.

  1. Anonymous Coward
    Anonymous Coward

    Piggly Wiggly

    Imagine the situation in reverse. If a bunch of hedgies piled in to drive the price of an ailing company to a clearly artificial level at the expense of a bunch of small time day traders and retail trend followers, prosecutions for market manipulation would follow.

    I am not an expert on US markets, but colluding to create an artificial price (especially if the intent is to inflict margin calls or to hit an option strike) is a breach of securities law in most countries. Doing it on a public Reddit forum doesn't make you exempt.

    Brokers like robin hood have a duty to their retail clients to protect them from situations where they do not understand the levels of risk they are taking, as well as to prevent any trades where they have reason to believe their client is acting illegally or trying to manipulate the market. This is likely why they blocked trading. They could well be in breach of their regulatory requirements if they didn't.

    Trying to corner the short sellers is not a new thing. Google the title of this comment for an old example.

    1. Anonymous Coward
      Anonymous Coward

      Re: Piggly Wiggly

      >>>Imagine the situation in reverse. If a bunch of hedgies piled in to drive the price of an ailing company to a clearly artificial level at the expense of a bunch of small time day traders and retail trend followers,

      OK. So a normal day on Wall St. Go on ....

      >>>prosecutions for market manipulation would follow.

      Oh the naivety.

      1. veti Silver badge

        Re: Piggly Wiggly

        Uh huh. So could you explain, why do you think Gamestop is fundamentally worth as much as IKEA?

        That's the bottom line here. What is the company worth? What would you pay for its assets and its business?

        There's not the slightest doubt that the answer to that is "way, way less than current valuation." Nobody even tries to argue about that. Which means the current valuation is clearly unrealistic and unsustainable. The key word being "clearly".

        And no, that is not "a normal day on Wall St". Collusion to manipulate a stock price is illegal. And for good reason.

        1. fwthinks

          Re: Piggly Wiggly

          You only have to look at the Tesla and Uber share prices to know that "fundamentals" are irrelevant anymore. If the share price is high because of what is potentially possible in 5-10 years - then that is just a bet. No different from throwing money on a horse.

        2. Zolko Bronze badge

          Re: Piggly Wiggly

          "So could you explain, why do you think Gamestop is fundamentally worth as much as IKEA?"

          yes I can: for the exact same reason that Tesla is worth as much as Ford despite selling 1000 times less cars. (I didn't look up the exact numbers, but you get the point). That's called a speculative bubble and happens all the time ... except that most of the times it's the big fat porks that get to make money from it and the small retailer gets to foot the bill: this time around it was different so it had to be outlawed ?

          1. Pascal Monett Silver badge
            Trollface

            Re: this time around it was different so it had to be outlawed ?

            Well obviously.

            You can't have the rich losing money, now can you ?

            1. veti Silver badge

              Re: this time around it was different so it had to be outlawed ?

              Who do you imagine these "rich" are?

              Sure, the fund managers are well paid - ridiculously so, much of the time - but this very story illustrates why this is. It's an extremely high pressure job. I wouldn't do it, for one.

              But they're not betting their own money. They don't just pocket the gains, and they won't sustain much of the loss either. Remember, it's a hedge fund.

              The real money involved here - the billions, as opposed to mere millions - belongs, mostly, to banks, pension funds, charities... They're the ones who will be out of pocket from this fiasco.

          2. keith_w Silver badge

            Re: Piggly Wiggly

            The stock valuation is not worth what Ford is worth. The stock value of Tesla is worth more that Ford, GM, Toyota, and Nissan (and possibly others) combined. While people such as Warren Buffet talk about fundamentals, people who invest in companies like Tesla whose price/earnings ratio are ridiculous are not making rational decisions, they are making emotional ones. I invested in R.I.M. years ago and watched the price go crashing down thanks to short sellers, so you will not see me shedding any tears for there losses.

          3. veti Silver badge

            Re: Piggly Wiggly

            Tesla at least has a business plan that creates the possibility it will grow into those sorts of earnings. Crucially, it also lacks the weight of historical liabilities that crushed GM - the unfunded pension promises, the long history of commitments and favours and expectations that basically every company accrues over time.

            I presume it will acquire these, or similar liabilities, as it grows - but as yet it's relatively unencumbered by them.

            It's also, of course, brutally defended by Elon Musk, who protects and nurtures the share price with a reality distortion field that rivals that of Steve Jobs in his prime. And who also, I notice, did his bit to pump Gamestop.

            1. First Light Silver badge

              Re: Piggly Wiggly

              I doubt that Tesla will acquire any employee expectations - Musk is moving the company to Texas in part because the local sheriff threatened his Fremont plant for forcing employees to work during a coronavirus "shelter in place" order. In Texas he can screw them royally.

              https://www.wired.com/story/sheriff-tells-tesla-not-essential-musk-thinks/

        3. Christopher Reeve's Horse

          Re: Piggly Wiggly

          It's only now 'worth' that much because the hedge funds upped the stake by betting heavily against the company. In poker you can have a very high stakes game with everyone holding low value hands, and this situation in the market is more like a casino bet than a valuation of the company.

        4. amanfromMars 1 Silver badge

          Re: Piggly Wiggly and the Perils of Good Smack and Great Crack

          Collusion to manipulate a stock price is illegal. And for good reason. ..... veti

          Oh? How very strange then, veti, whenever if illegal there appears to many to be no discouraging punishment available and applied to those engaged and proven to be instrumental in the practice.

          Indeed, it appears to a great many to be extremely rewarding rather than anything else exceedingly unpleasant and designedly punitive.

          Surely shorting stock as it is widely perceived and accepted is virtually identical and akin to collusion to manipulate a stock price to generate and enrich a third party essentially then a criminal profit?

          Does the SEC/Federal Reserve/Wall Street/FBI/dumb schmuck in the street not see it so? What are they all on?

          1. veti Silver badge

            Re: Piggly Wiggly and the Perils of Good Smack and Great Crack

            Shorting stock is not collusion. It only requires one party making the decision to take the risk.

            And as discussed ad nauseam already, it's a bet. It can be won or lost. This idea that hedge funds have some kind of sorcery that makes them immune to losing such bets is sheer fantasy. They lose them all the time, it's just that they don't like to brag about it when it happens.

            (It's true that they do win more than they lose. If they didn't, they'd be out of business. But that is not proof of cheating: it's evidence that, actually, they really are better at this game than Jo Random on Reddit.)

            1. amanfromMars 1 Silver badge

              Re: Piggly Wiggly and the Perils of Good Smack and Great Crack

              Ok, we will have to agree to disagree on the finer points of that older point to be further discussed by some/many others ad nauseam, veti, but moving on a tad ..... it is surely impossible to deny that there is presently a hell of a lot of collusion going between traditional conventional market players and regulators to ensure future shorting bets are more secure in a rigged system to protect established vulnerable to flash virtual mob players seeming to suddenly appear out of nowhere to invest in a distressed commodity/targeted failing entity.

            2. Blank Reg Silver badge

              Re: Piggly Wiggly and the Perils of Good Smack and Great Crack

              The difference is that when hedge fund managers start talking down a stock it can actually have an impact. when Joe random does it no one will listen.

              1. Anonymous Coward
                Anonymous Coward

                Re: Piggly Wiggly and the Perils of Good Smack and Great Crack

                EXACTLY!

        5. Michael Habel Silver badge

          Re: Piggly Wiggly

          WE LIKE THE STOCK!

    2. cantankerous swineherd

      Re: Piggly Wiggly

      "drive the price of an ailing company to a clearly artificial level at the expense of a bunch of small time day traders and retail trend followers, prosecutions for market manipulation would follow."

      yeah right

    3. Anonymous Coward
      Anonymous Coward

      Re: Piggly Wiggly

      So what do you call it when hedge fund vultures pick on a company to short, knowing full well that their very action will cause people to panic and sell, thus creating the very situation they "predicted".

      They're happy to bankrupt companies and make people jobless just to earn a few more millions.

      The shorting was the manipulation, not the resistance to it.

      1. veti Silver badge

        Re: Piggly Wiggly

        They don't "know full well" what will happen. Sometimes they win, sometimes they lose.

        The stock price at a given moment is supposed to reflect a consensus on what the company is worth. If you think that consensus is wrong, one way or the other, you can place a bet on its changing in your predicted direction. That's what shorting is.

        Like any bet, you can lose.

        But if the answer was clear cut, so that you could be sure, then the consensus view would already have absorbed it, so the movement you're betting on wouldn't happen. To make money, you need to either have more information or be better at analysing it than most other people.

        1. jmch Silver badge

          Re: Piggly Wiggly

          "They don't "know full well" what will happen. Sometimes they win, sometimes they lose."

          The hedge funds are professionals at this. They might not know 'full well' exactly what will happen, but they actually have a pretty good idea what will happen and with what probability, and intend for exactly that to happen. Most times they win, very very rarely they lose.

        2. ThatOne Silver badge

          Re: Piggly Wiggly

          > is supposed to reflect a consensus on what the company is worth

          "Supposed", indeed. The idea is so 19th century... Today the stock price just reflects the money you think you can squeeze out of it, manipulating it one way or another.

          The proof being the countless very creative methods to make money out of stock, without anyway helping (actually often harming) the actual company issuing it.

          Like another article rightly said, stock isn't anymore a way for companies to get additional funding, it's just a huge casino where the big actors can fleece small investors: The money some win needs to be lost by others, doesn't it (yes, bubbles, but those are special cases).

    4. Triggerfish

      Re: Piggly Wiggly

      Imagine the situation in reverse. If a bunch of hedgies piled in to drive the price of an ailing company to a clearly artificial level at the expense of a bunch of small time day traders and retail trend followers, prosecutions for market manipulation would follow.

      If you had stopped there it would have been a classic example of poes law.

    5. Zolko Bronze badge

      Re: Piggly Wiggly

      "colluding to create an artificial price (especially if the intent is to inflict margin calls or to hit an option strike) is a breach of securities law in most countries"

      I'm sure you have some solid evidence to prove your claim. Would you please share a link with us ?

  2. Pascal Monett Silver badge

    "the equity required to buy a stock with borrowed funds"

    I'm sorry, but a financial market that allows you to bid for stock with money you don't have is a broken institution.

    The world needs to take a step back and end the madness. There is no excuse for allowing stock market operations with money that you do not own.

    Take out a loan, sign up with a bank, by all means. But once you put money in this roulette operation, it should be yours, not someone else's promise.

    1. cantankerous swineherd

      Re: "the equity required to buy a stock with borrowed funds"

      how about selling shares you don't own?

      how about "buying" 140% of shares issued?

    2. Zolko Bronze badge

      Re: "the equity required to buy a stock with borrowed funds"

      "a financial market that allows you to bid for stock with money you don't have is a broken institution."

      it's worse than that: they sold stocks they didn't have, so they had to borrow them with money they didn't have. It was all vapourware, and when it flew around their ears they cried for mum (i.e. the same regulators that they despise otherwise).

    3. Xalran

      Re: "the equity required to buy a stock with borrowed funds"

      But that's the whole point of shorts and how Hedge funds work.

      They borrow equities from an Entity that owns them for a set amount of time and sell them at a price, betting that the price will go down.

      Once the prices has gone down far enough for them, they buy back the equities and then give them back to the entity they borrowed them.

      Along the way they generate money by the difference in equity price between the value they sold it at and the value they bought it back.

      If the price goes up, when the borrowing amount of time expires they have to buy back the equities they borrowed to give them back to the entity they borrowed it from. And in that case they loose money. that's the particular WSB used, they artifically raised the price of the equity ( Gamestop ) a specific Hedge Fund was heavilly invested in through borrowed equities betting that the price would go down. Since the price didn't go down and kept going up at some point the Hedge Fund had to cut it's loss ( or the borrowing entities asked for their borrowed equities to be given back ). This made the Hedge Fund loose billions.

      Since Hedge Funds have been manipulating the markets for years, it's a huge FU message sent their way.

      Two things shouldn't exists :

      - Hedge Funds

      - Equity Borrowing

      This would solve a lot of market manipulation and actually bring the market back to actually looking at the fundamentals of a given company in order to invest or not instead of the completely disconnected Lalaland it lives in right now.

    4. Anonymous Coward
      Boffin

      @Pascal Monett Re: "the equity required to buy a stock with borrowed funds"

      Using your logic... taking out a loan for a car would indicate a broken institution, or a mortgage for a house.

      Sorry but you really need to learn more about the markets to understand how they work.

      Talk to a broker about how to set up margin on your account. ;-)

      There are rules in place which is what can cause a short squeeze.

      This isn't the first, or the last. Also playing w options and futures can be a dangerous game. There were a lot of small investors who got nailed in the oil markets and lost a lot of money because they thought that they knew what they were doing but didn't.

    5. Tom Paine

      Re: "the equity required to buy a stock with borrowed funds"

      I see. You're advocating for a zero leverage rule? Presumably for all markets, not just equities?

  3. ecofeco Silver badge

    Oh this gets even better!

    https://www.ft.com/content/3ed827e0-2a2 ... 8383da43b7

    Kushner venture fund helps turn Robinhood into a unicorn

    Yeah. THAT Kushner.

    1. Palpy

      Re: Proper link to Kushner story

      https://www.ft.com/content/3ed827e0-2a23-11e7-9ec8-168383da43b7

      Financial Times. Paywalled, though.

      1. cantankerous swineherd

        Re: Proper link to Kushner story

        google news is your friend

        1. short a sandwich

          Re: Proper link to Kushner story

          No, Google are not our friends!

  4. handle handle

    2LIPS

    <mic action=“drop”/>

  5. Anonymous Coward
    Anonymous Coward

    It's a Pyramid Scheme

    At some indeterminate point in the future, people will realise that the share price is not justfied by the underlying fundementals of the company's business and the price will then collapse, with the late entrants left nursing very large losses.

    Who's to say that this Pump & Dump operation hasn't simply been driven by other professional traders?

    1. Tom Paine

      Re: It's a Pyramid Scheme

      If it's never happened on /r/wallstreetbets before, I'm certain a bunch of people have noticed the precedent and are looking for the next stock vulnerable to such manipulation.

  6. amanfromMars 1 Silver badge

    Wall Street .. a CoVid 19 like virus bugging a Fed Money System and ...

    .... if one were to popularise and infantilise the SEC, would Darth Vader be an accurate depiction of their true nature and relative position in the Securities and Exchange Universe?

    Now that Wall Street whales' blood has been shown to be so easily spilled in the deep and dark waters of dead rich pools, why ever would anyone never think and not realise that even greater swarms of sharks are to return again and again to feast in feeding frenzies? Such is surely inevitable and quite natural?

    It is just the simple way of the internetworking of things and active since before even time became a measure of distance in space.

    To think IT otherwise renders one extraordinarily disadvantaged and disenfranchised.

  7. low_resolution_foxxes Silver badge

    I've seen surprisingly few people point out the obvious problems with Gamestop. As internet speeds increase, particularly with the ps5 being download only (I think?) isn't it a rather bloody obvious short, that if the market moves digital, Gamestop will become another kodak/VHS company?

    Shorting is a funny game, some of it murky and politically/nation based. Where it gets tricky here, is that Robin Hood has an unusual income model, where you can't fail to ignore the reported ~40% of it's income comes from algorithmic trading from the exact hedge funds that were betting against Gamestop. It boils down to, did those hedge funds collude to request this change of policy? In which case, sec would probably be forced to take action.

    This kind of pump and dump scam is toxic in both directions. I'd like to think you know the risks and take your chances on these type of investments. They are literal gambling where the punters snd ptofessionals can influence the outcome.

    1. Aristotles slow and dimwitted horse Silver badge

      I'm surprised you are so surprised. It's reckoned that over 60% of all trades made on the US markets are algorithmic in nature by way of dark pools and such like.

      Flash Boys by Michael Lewis is a good place to start if you want some easy to digest background.

      1. low_resolution_foxxes Silver badge

        Hi - you are correct and I am aware of this. But perhaps I wasn't clear on my meaning.

        I was referring to the fact that Robinhood is a "no fee" dealer. On one hand this is great, but it goes back to the Facebook operating model - if it is a free service, how does it make its income?

        The answer is quite complicated for your average punter, but basically Robinhood trades in off-exchange 'dark pools' (away from regulatory scrutiny of the public exchanges). This article explains it quite well, they are basically charging algorithmic hedge funds, for advance visibility of the order flow within the Robinhood platform.

        The core idea being, if you can see visibility in advance (1-10 seconds) of the market order books (and future trade direction), the algos can theoretically get an edge on their competitors. To the average punter this is meaningless, technically they are getting a free/cheap service, they may get a better price for their shares, while the algos cream a few pennies off each trade (but multipled by billions of trades...it adds up). Link:

        https://www.cnbc.com/2019/04/18/a-controversial-part-of-robinhoods-business-tripled-in-sales-thanks-to-high-frequency-trading-firms.html

    2. Zolko Bronze badge

      "did those hedge funds collude to request this change of policy?"

      of course they did. Did Goldman-Sachs know before 21. september 2008, when they changed their status overnight from investment bank to retail bank, that the FED's Henry Paulson, a former Goldman Sachs director, would only save retail banks after the financial meltdown ?

      "In which case, sec would probably be forced to take action."

      forced by whom ? Jeo Biden who has received billions in donations from Wall Street ?

      1. low_resolution_foxxes Silver badge

        Ha, yes, nothing focusses the mind (and fills suitcases with cash for bribes, errr, I mean cash for key consultancy advice/advertising) better than losing £400m in a week.

        I find Goldman Sachs problematic in general at a political level, although the few people I've met who worked for GS are actually decent intellectual people (no obvious lizard features or child cannibals), but commonly found working 12 hours and getting the early divorce to add to their CV.

        The practical reality, is if there is a way to make money and it is legal, most individuals and companies tend to do it. Although frankly Goldman got caught with their trousers down during the Malaysian corruption scandal (was it a $3bn fine?). I think it would boggle the average humans mind, that Goldman made $600m on that $6bn deal, by bribing politicians and selling "investment equity" to investors, while taking a cool 10% top slicing of the investors money. It's borderline theft (while probably not technically illegal in itself?).

    3. amanfromMars 1 Silver badge

      Forget about the Trojan GameStop, ... they are, as you say, Confirmed Roadkill

      I've seen surprisingly few people point out the obvious problems with Gamestop. As internet speeds increase, particularly with the ps5 being download only (I think?) isn't it a rather bloody obvious short, that if the market moves digital, Gamestop will become another kodak/VHS company? ..... low_resolution_foxxes

      The eventual fate of GameStop in this epic shorting saga is of no lasting significance or of great interest to market players/investors/daytraders/whales/sharks/minnows/pirahnas ... call them whatever you will ...... for they are/were simply a very convenient and timely conduit, [or not so, if one suffered massive unexpectedly devastating losses in a recklessly speculative bet against competition and opposition realising both your fundamental greedy weakness and vulnerable position taken,] allowing market access to another unsuspecting high value target with more money than sense to extract for profit and fun.

      You know, nothing really new ..... akin to business as usual and just like a good ole brokers day in the hood rather than confined and constrained in a high rise of a Wall Street office block .... although that might be a little different and something new to get used to if nothing fundamentally changes in the sector.

  8. Repne Scasb
    Holmes

    Defund the funds!

    "Game's over and I'm taking my ball home!"

    "It's not your ball, it's mine, you just borrowed it and then sold it to me. Now I want the ball you borrowed back. Tell you what, I've got one here you can buy. Gonna cost you though.."

    Good thing you can only borrow the ball once. Oh wait....

  9. Ordinary Donkey

    Some would say that the real market manipulation is the government bailing out Wall Street every time it fucks up and proves itself unfit for purpose.

    Just summarising the views of the people doing this to hurt wall street there. Remember, American workers didn't get a furlough during covid but Wall Street got trillions. People are angry.

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