Hedge fund Melvin Capital, notoriously known by the retail community for betting against GameStop is now closing its doors.
2022 marks the second year in a row the short seller underperforms.
Melvin Capital lost a staggering 20.6% the first quarter this year alone.
In 2021, they took a heavier hit with 50% in losses.
Now the hedge fund tells CNBC they will be shutting down by the end of June and starting a new company.
Let’s dive deeper.
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The apes were right
In March, I published a tweet asking the community whether Melvin Capital would be the next hedge fund to default.
We all saw this coming, but 90% of you voted YES.
Forward a month later and now the hedge fund is announcing it is closing this summer.
Earlier in March we saw another notorious hedge fund known for shorting GameStop pull $2 billion from Gabe Plotkin’s Melvin Capital.
That hedge fund was Citadel.
Citadel also lost billions last year shorting so called ‘meme stocks’, so it comes as no surprise as to why they pulled out from Gabe Plotkin’s Melvin Capital.
Ken Griffin’s Citadel also imposed tight restrictions on its clients leading into the new year.
Customers were given an ultimatum to either stay with the firm otherwise coming back would prove to be difficult.
Steve Cohen’s Point72 redeemed $750 million from Melvin Capital around the same time.
Ken Griffin received a $1.2 billion lifeline from partners Sequoia and Paradigm in January of this year.
This was the first time Citadel had ever received private funding.
Don’t bet against the apes
Mainstream media doesn’t give retail investors enough credit for shedding light on market injustices.
The ‘ape’ community has grown since last year as retail investors discover the short interest data that points towards a bigger AMC runup than that of January and May of last year.
In this video I go over patterns that are similar to those from last year’s runup and what we should keep a close eye out on.
The apes were right about naked shorting, dark pools, and the dangers of betting against retail.
Now hedge funds are dealing with the consequences of betting against the people.
Majority of the community continues to buy and hold ‘meme stocks’ such as AMC and GameStop in efforts to create a massive short squeeze.
Retail has said it many times, a short squeeze is inevitable.
While the SEC might be proposing rules that could wash naked short selling, yet avoid them in the future, it would take years to enforce if passed.
Will hedge funds survive?
Hedge funds are currently facing deep scrutiny from both retail investors and regulators.
The DOJ is taking Morgan Stanley, Goldman Sachs, and numerous other hedge funds to court.
Citadel is one of the short sellers currently being investigated by the Department of Justice according to a Bloomberg report.
The SEC and DOJ are looking into the following:
- Communication between banks and hedge funds
- Proof of ‘Bear Raids’
- Spoofing
- And several other market manipulation tactics
Hedge fund Muddy Waters was already raided by the FBI earlier this year for flooding the market with fake orders to drive stock prices down.
Melvin Capital is only one of many hedge funds that has closed down in the past year due to overleveraged short selling, and bad bets.
What are your thoughts on the Melvin Capital news?
Did you see it coming?
Leave a comment below.
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If Melvin capital is still shorting AMC and they essentially go into “bankruptcy”, does that mean they don’t have to pay up on when AMC squeezes?
Great question, it is certain that Melvin and other HF’s are still shorting AMC & GME but what happens in a liquidation ie are they made to cover shorts or can they just let them go unpaid for. It would be scandalous if Melvin et al are allowed to not pay the market rate for their shorted / naked shares, and then set up with a clean sheet with a new HF.
This does not feel good for retail and the MOASS and we could be shafted again.
I think we’d have a class action law suit if that happens. If they allow Melvin to do that, then every HF will do it.
Great info Frank but how do we know that Melvin Capital is not still shorting AMC or GME since they don’t have to divulge this info? The fact is when they close down and re-open again they have to close out their positions and if AMC and GME are still being shorted than this could be a catalyst we needed for a potential squeeze.
That was certain but other HF betting against “meme” stocks already closed and we didn’t saw any price movements on the upside…
So l am wondering what did they do with their short open position???
Alot of HF covered their positions but then reopened again but none over never closed.
Sarc on/ I feel so bad for Melvin Capital. Let the dominoes fall where they may.
Let’s start a discussion!