Monetary ties between Robinhood and funds shorting GME fall beneath scrutiny

The connections between buying and selling app Robinhood, Citadel hedge fund, Melvin Capital, and GameStop have gotten clearer because the Web burns with outrage over allegations of market manipulation.

Melvin Capital was one of many largest gamers short-selling GameStop inventory, or GME. When quite a lot of Redditors — and players — on the r/Wallstreetbets subreddit pushed again towards establishments making an attempt to financially destroy the favored brick and mortar online game retailer, the worth of GameStop shares shot up. This successfully turned the tables on Melvin and left the agency susceptible, with its buyers prone to lose billions.

Nevertheless, Citadel and Point72 Asset Administration got here to the funding agency’s rescue on Monday, investing $2.75 billion in Melvin and patching the issue whereas the agency seemingly appeared for extra lasting options.

Inside just a few days, Robinhood would go on to limit buying and selling for GME and others, successfully stopping retail buyers from buying extra shares of the shares. Whereas nonetheless far greater than it was earlier this month, the worth of GME has halved at present, dropping from $462.42 to $231.57 as of the time of publication.

The autumn in GME’s worth would seemingly profit Melvin at this level. Nevertheless, for a buying and selling app like Robinhood, which claims to “democratize finance for all,” many have been questioning the motivations behind the platform all of a sudden proscribing trades for lots of the shares Redditors have been pumping.

Based on a June report from the Monetary Occasions, $39 million of Robinhood’s revenues from equities and choices order stream got here from Citadel Securities, a market maker sister agency of Citadel. On the time, this represented greater than 35% of the buying and selling platform’s revenues.

In abstract, Citadel is one in all Robinhood’s largest prospects. Citadel invested in Melvin, which is doubtlessly going through hassle as a result of a bunch of buyers from Reddit determined they didn’t like a significant hedge telling the market to crush GameStop. Lots of the Redditors used Robinhood to purchase GameStop shares. Now Robinhood has severely restricted buying and selling for GameStop.

Citadel is an investor in Melvin Capital, which obtained run over by Wall Road Bets. Citadel can be Robinhood’s largest buyer.

— Tyler Winklevoss (@tyler) January 28, 2021

Whether or not this case may be proved to be market manipulation in a courtroom of legislation has but to be decided, however allegations on social media are considerable. Many are in search of communications between these hedge funds and Robinhood previous to the restricted trades that may show Citadel “inspired” the buying and selling platform to play ball or that Robinhood gave them discover of its intent to cease buys for GameStop and others.

Twitch co-founder Justin Kan mentioned on Twitter that he had acquired a tip alleging Citadel “reloaded their shorts” on GameStop earlier than Robinhood suspended the buys. Dave Portnoy, the founding father of Barstool Sports activities who briefly entered the crypto area final 12 months, accused Point72 founder Steven Cohen of getting a “robust hand in at present’s felony occasions to save lots of hedge funds at the price of odd folks.” Cohen vehemently denied the accusations.

Within the meantime, no less than three U.S. lawmakers are calling for an investigation into Robinhood’s actions, and two class-action lawsuits have been filed towards the buying and selling platform in federal courts in Illinois and New York. 

Democratic Senator Sherrod Brown additionally mentioned at present that he was planning to carry a listening to on “the present state of the inventory market.” Although the lawmaker didn’t particularly point out GameStop or Robinhood, his announcement referenced Wall Road buyers breaking the principles:

Folks on Wall Road solely care concerning the guidelines after they’re those getting damage.

It is time for SEC and Congress to make the financial system work for everybody.

As Incoming Chairman of the @SenateBanking Committee, I shall be holding a listening to on the present state of the inventory market. https://t.co/V9Hzp26jRT

— Sherrod Brown (@SenSherrodBrown) January 28, 2021

Cointelegraph reached out to Robinhood, however didn’t obtain a response on the time of publication.