Reddit Vs. Wall Street

Anthony Acevedo

On January 27, 2021, GameStop stocks reached an all time high of $347.51 because of amutuer investors and a Reddit Community.

Last month, GameStop’s stock rose in value out of nowhere which caused confusion to the public. There were many factors that played into the sudden rise of value, but the main cause was due to amuteur investors buying low and selling high. Some of these investors are members of a Reddit community called r/WallStreetBets. A Redditor from that community started buying GME, stock name for GameStop, on September 8, 2020. On that day, GME cost about $4.50 per share and they invested $53k. Exactly a year later, Redditor u/Jeffamazon makes a post about his prediction of GME rising in value. His post is an in-depth analysis about GME raising in value and tries to convince others to invest while they still can. Later that year, Ryan Cohen, the founder of Chewy.com, invested $76 million which is over 9 million shares. On that day, GME closed at $14.83. Cohen and his 2 other colleagues join the GameStop board of directors and plans out an Idea that will make GameStop, “. . . evolve into a technology company that delights gamers and delivers exceptional digital experiences — not remain a video game retailer that over-prioritizes its brick-and-mortar footprint and stumbles around the online ecosystem” (D’Innocenzio). While GME slowly rose in value, there were individuals who doubted that the Stock would reach high value. 

Short sellers on the market were calling that GME wouldn’t rise and that it would fall back down fast. How that works is when a Short Seller, “. . . borrow stocks from brokers, sell them, and when the stock price falls, buy them at a lower price and return them to the broker, pocketing the difference” (Molla).  Investor Michael Burry posted, currently now deleted, on Twitter about how buying GME is, “unnatural, insane, and dangerous”, and that there should be “legal and regulatory repercussions.” During the hype and rise of GME, Short Sellers borrowing the stocks had to buy at higher prices, which drove the stock higher in value. But the prices didn’t go down. Instead, it rose up to $337.51. Due to the rise in value, Short Sellers lost about $12.79 Billion on GME Stocks according to “recode”. Because of the large loss, Hedge fund Melvin Capital was, “. . .  was forced to close out its short position in GameStop ” (Molla). Short Seller Citron Research also had large losses and announced that, “. . .  it would stop publishing short-selling reports entirely” (Molla). With short sellers gaining huge losses, there was 1 stock trading application that prevented people from buying more GME shares. 

Robinhood is an application that makes it simple for people to sell and trade on the stock market and buy cryptocurrency. During the craze, the App prevented people from buying more shares from GME and only allowing people to sell, which caused investors to be furious. The prevention of buying GME shares caused its value to go down significantly.  Even some members of Congress agreed that the app’s decision was unacceptable. Rep. Alexandria Ocasio-Cortez (D-NY) posted on Twitter that, “This is unacceptable. We now need to know more about [Robinhood’s] decision to block retail investors from purchasing stock while hedge funds are freely able to trade stock as they see fit”.  Another congressman, Sen. Sherrod Brown (D-OH), tweeted, “People on Wall Street only care about the rules when they’re the ones getting hurt. It’s time for SEC and Congress to make the economy work for everyone.” The action that Robinhood did not only received backlash from Congress, but also from users. Users of the app went to the Google Play store and made negative reviews and many 1 star ratings. As of writing this, the app is currently sitting at a 1.5 star rating. Soon, many lawsuits were made against the company. 

About 50 lawsuits were made against the Stock Trading App. On January 28, 2021, a lawsuit was filed against Robinhood due to preventing people from buying GME stocks. Brendon Nelson, a Robinhood user, made a lawsuit against the company and in the Class Action Complaint it says, “Robinhood purposefully, willfully, and knowingly removing the stock “GME” from its trading platform in the midst of an unprecedented stock rise thereby deprived retail investors of the ability to invest in the open-market and manipulating the open-market”. Another lawsuit was made by a family whose son, Alex Kearns, committed Suicide because he thought he was in $730k in debt. Kearns attempted to contact the company 3 times but was met with automated voice calls, according to CNBC. During a regulatory filing on January 29th, they were met with many, “. . .  requests for information from federal prosecutors, the Securities and Exchange Commission, various states attorneys general and other financial regulators over its decision to restrict trading last month in stocks including GameStop” (Goldstein). Many people wanted to sue Robinhood for it’s possible manipulation of the stock market and a lack of customer service. But because of Robinhood’s decision to bar people from buying GME, the value began to fall. 

The price of GME started to fall from $347 to $193 on January 28th, but rose the next day to $325. However, the next following days it continued to fall until it reached a low of $40. The sudden rise in popularity, and value, of GameStop stocks shook everyone and caused a frenzy that made people gain and lose money. The craze of GME could show that ordinary people can earn huge profits if they work together. It also possibly exposed the possible manipulation of the Stock market. For what reason Robinhood prevented people from buying GME, may be unclear for sometime. On the plus side, there’s an unexpected rise in value for GME, and as of writing this the price is $120. Could there be another skyrocket in value coming up? Only time will tell.