Robinhood forcibly selling shares of GameStop without users’ consent

NOQ REPORT ^ | 1-28-21 | C Q Livingston

[Brookhaven]

Reports are coming in that Robinhood, the stock broker app, is forcibly selling shares of GameStop on behalf of some of its users. The transactions cannot be canceled and it is being positioned as mitigating “unreasonable risk” on behalf of the company as well as the investor.

Billionaire hedge funds have been taking a huge hit after a Reddit group started buying up GameStop shares in an effort to counter a massive amount of short positions. This prompted a “short squeeze” that sent the stock skyrocketing. As the dominos fell, GameStop reached a high of over $400 dollars per share, more than 10,000% higher than its low point earlier this year.

Now, it appears Robinhood and other brokers are cutting the losses of the billionaires by limiting the gains of small investors.

[DownInFlames]

I would believe the lawsuits against R Hood will doom them.

[RinaseaofDs]

Robin Hood is already done.

What remains to be seen is whether it take Citadel down with it.

[Brookhaven]

They are both still on LOAN.

[bankwalker]

Bob borrowed it from Annie then sold it to a stranger. He has the money from the sale. Now Annie wants it back. Bob has to go buy one to give to her. It doesn’t have to be the same exact one, just the same kind. It’s this process of the shorts needing to go out and buy all at the same time that causes the squeeze.

[Bobalu]

This is such an outrageous mess that it has the capability of piercing the corporate veil and putting the officers of Robinhood in danger of criminal prosecution.

[jdsteel]

Sometimes there is no good guy in a story.

I hope Robinhood gets their just desserts.

[grey_whiskers]

It’s real and they already HAVE been sued.

[grey_whiskers]

You can buy a stock you don’t own yet, and hope the price goes up, so you make money.

You can sell a stock you already own, hoping the price goes DOWN, so you don’t lose any money.

When you buy a stock, your risk is limited: you can only lose as much as you paid for the stock, they can’t come after you for anything else.

But if you have a brokerage account and they give you certain permissions (you have to have enough money and have a clue what you’re doing...)

You can short a stock.

That means, you BORROW some shares from the broker. You SELL the borrowed shares. You are hoping the stock prices goes DOWN.

When the stock price goes down, you buy the stock back at the lower price, and give those back to your brokerage. You get to keep the difference in price.

The risk in a short is, NOT just the amount the stock cost when you shorted it. What if the stock goes up? What if the stock was at $1 / share. So you borrowed and sold 2000 shares, for $2000. Great, when the stock goes to 50 cents, you buy it for $1000 (2000 shares times half-a-buck-per-share), and give the shares back, and you’ve made $1000.

Clear so far?

Now, what’s the risk in a short? Let’s say you sold 2000 borrowed shares for $1 apiece. Now let’s say that company announces they’ve discovered the cure for liberalism. Their stock goes to $1000 / share !! Now you have to come up with, $2, 000, 000 — a cool two million — to buy your 2,000 shares back.

In theory there is no limit to what you might owe, by shorting a stock.

Hang on, because it gets worse.

Now there are two kinds of shorts — not joking, despite the pun — regular and naked. In a regular short, your broker actually has the shares to borrow. In a naked short, they’ve sold more shares than actually EXIST.

So when it comes time to buy them back — it’s like all 3 of the Three Stooges trying to go out the same door at the same time. EVERYBODY wants the stock. But there isn’t enough to go around. So the price goes UP. That makes all the people with shorts on the stock, go even FURTHER into debt. And so on.

(There’s a rule that you can’t buy back your shares in a short until the price temporarily drops a bit. So what does that rule do, if it just keeps going UP?)

But there’s one more nasty ingredient.

There are organizations called “hedge funds” — for rich people (net worth usually in the millions at least, or at least (say) $250,000 yr in income, sometimes more than that.) They are called “hedge funds” because they provide a hedge, a shelter, against risk and uncertainty.

Sometimes what the hedge funds do — and this is kinda near the border of what is legal — is, they see a stock of a weak company. And they informally say, “We iz ALL gonna short that stock at once, and drive the stock down, and that’ll bankrupt the company but make us rich, so YAY US!”

Some hedge funds tried to do this to GameStop. The rationale on the surface, was, hey, retail store + COVID == business sucks. But GameStop had two things.

Some e-commerce Fanbois who are gamers / weaponized autists, who know how to use every chink in the rules to win. So when the hedge funds said, “Let’s short GameStop” the autists said, F this S, we’re gonna buy and drive the price UP.

And the hedge funds (who were doing naked short selling) got caught with their pants down, bigtime. If you owe too much on a short, your brokerage fund, or bank or whatever, can FORCE-sell other stuff you own, to make sure you’re good for the money on the short. That happened to the hedge funds here: I’ve read anywhere from 6 to 14 BILLION in losses so far.

So now they’re squawking to the FTC and lawyers and Congress and everybody, “Waah! Those nasty redditors aren’t letting us bend the rules!”

Hilarity ensues.

[kelly4c]

And this the people heard. And then experienced. And then they said after four years...We’re tired of winning. Let’s just go back to the status quo for the heck of it.

But they’re getting more than they bargained for aren’t they? Status quo on steroids. With a side of cake.

Let them eat.

[Ozark Tom]

Vladimir Tenev and Baiju Prafulkumar Bhatt perhaps should hire re-inforcements for their security detail?

[Magnum44]

Now let’s say that company announces they’ve discovered the cure for liberalism.

I’ll buy some of that...lol. Thanks for the explanation.

[bobcat62]

The ‘spergs at WSB are ready to go to war. Many are willing to let their $GME positions go to zero, just to send a message.

I have a stock simulation game on my iPhone, based in Euros & European market hours. $GME is already showing a 20 percent gain on $GME, which is continuing upward.

[combat_boots]

Bttt

[StAnDeliver]

"I am a stock and option day trader that has been trading these instruments the last few days. The level of criminality and outright theft of client money was breathtaking today. Halt a stock, change the price,liquidate clients stock portfolios without their permission, cutting option prices in half while the the stock was halted, misrepresenting option prices, manipulating option prices to induce bad trades, it was absolutely unbelievable. I took photographs of my trading pages today for the lawsuits that must be coming. Massive massive fraud today on a scale I never would have believed. Now I do."

Great post. A thought experiment, if you don't mind...

"I am a voter that has been voting for years. The level of criminality and outright theft of votes was breathtaking today. Halt the voting, change the amount, accept ballots (and harvesting) without their verification, cutting votes in half while the the voting was halted, misrepresenting voting machine software, manipulating votes to induce bad elections, it was absolutely unbelievable. I gathered evidence of the widespread vote fraud for the lawsuits that must be coming. Massive massive voter fraud today on a scale I never would have believed. Now I do."

[RinaseaofDs]

And because Jen Psaki’s husband being a Citadel portfolio manager and Yellen being paid $800K in speaker fees (bribes) isn’t enough.

Guess who is in charge of prosecuting the lawbreaker Citadel and Robin Hood?

None other than Peter Strzok’s wife, who was promoted yesterday:

Melissa Hodgman, has been named Acting Director of the Division of Enforcement.

Because you can’t make this sh!t up.

[minnesota_bound]

I had an account where I had invested $500 a few years ago and bought AMD stock. I sold 3 weeks ago and then today I transferred my now $1,259.43 to my bank account leaving $0 in the Robinhood account. I will close out the account as soon as the money shows up at my bank.

I use Ameritrade now as my broker which had bought Scottrade which was my past broker. Then they were bought by Charles Schwab.

[HKMk23]

THIS is the excuse of the day:

“According to former SEC chief economist and Tepper School of Business (Carnegie Mellon) professor Chester Spatt, these actions were simply the companies and the trading infrastructure doing what they were supposed to do. This, he said, was an example of regulations working.”

Webull’s [CEO Anthony] Denier said, “There is an outcry because a lot of the retail [investors], they don’t actually understand the dynamics that happen after a trade.”

“It has nothing to do with the decision or some sort of closed room smoke-filled cigar room of Wall Street firms getting together to the dismay of the retail trader. This has to do with settlement mechanics of the market,” he added.

https://finance.yahoo.com/news/robinhood-didnt-change-the-rules-chester-spatt-204321652.html

You just watch: this will ALL get swept away in a flurry of high-brow market insider condescension toward the retail investors “who OBVIOUSLY haven’t a clue what’s really going on.”

[Bobalu]

[Mr. K]

So they spread the loss to those who did not participate by ‘closing’ their stock position at $118 when the stock went to $400

Thanks!

I would drop that company right now