The founder of the investment firm at the centre of the GameStop saga is due to make his case against accusations that his short selling strategy was predatory or involved illegal market manipulation.
Melvin Capital founder and chief investment officer Gabriel Plotkin — who says he was “humbled” by the events of January — laid out his opening testimony ahead of the US House Committee on Financial Services hearing taking place today.
Plotkin says that Melvin Capital “played absolutely no role” in trading platform Robinhood’s decision to limit trading in GameStop stock and that Melvin Capital closed out all of its positions before buying restrictions were put in place. “Like you, we learned about those limits from news reports,” Plotkin will argue.
The popular low-fee stock trading platform was forced to briefly ban buy orders on several volatile ‘meme stocks’ including GameStop in order to allow the broker to refinance its collateral account with its central counterparty.
Plotkin will also defend the short selling practices of the firm, emphasising the amount of research that had taken place before deciding to short the struggling bricks-and-mortar gaming retailer. “It is very important to understand that absolutely none of Melvin’s short positions are part of any effort to artificially depress or manipulate downward the price of a stock,” Plotkin says in his pre-released written statement.
The trends Melvin Capital had identified — downloads are in, stores and trading games are out — were so entrenched that Plotkin says his firm had been short GameStop since its founding six years ago.
Plotkin’s testimony also strikes a more human note, detailing the anti-semitic Reddit posts aimed at himself and his fellow Jewish colleagues, which encouraged users to trade in the opposite direction of Melvin Capital after the firm’s investments, gleaned from its Securities and Exchange Commission filings, were laid bare on the WallStreetBets subreddit.
Elsewhere, Andrew Left, the head of Citron Research, another hedge fund caught out by the short squeeze, has also detailed receiving online abuse and death threats and has since quit publishing reports on its short activity.
When the subsequent “frenzy” began — in which GameStop’s stock soared from $17 to a peak of $483 and reflected no “intrinsic value” — Melvin Capital started closing out its position at a loss, Plotkin said, “not because our investment thesis had changed but because something unprecedented was happening.”
Plotkin says that Melvin Capital also reduced many other long and short positions at significant losses that were the subject of similar posts.
Plotkin also says he wants to “make clear” that contrary to many reports, Melvin Capital was not “bailed out” during these events.
“Citadel proactively reached out to become a new investor, similar to the investments others make in our fund,” and the move was simply an opportunity for Citadel to ‘buy low’ and earn returns for its investors if and when our fund’s value went up, Plotkin explains.
Other witnesses due to testify at today’s hearing on the impact of short selling on retail investors include Robinhood CEO Vlad Tenev, hedge fund Citadel CEO Kenneth Griffin, Reddit CEO and co-founder Steve Huffman, and day trader Keith Gill, who is credited with rallying the retail interest in GameStop through WallStreetBets.
US congresswoman and committee chair Maxine Waters announced the hearing at the end of January citing a need to address "predatory short selling" by hedge funds which she claims are “preying on the pension funds of hard-working Americans”.
