Melvin Capital Management, the hedge fund squeezed by its short-selling bets that GameStop shares would fall, lost 53% on its portfolio in January, a source familiar with the matter told FOX Business.
The heavy losses came as an army of at-home traders in the Reddit forum "Wallstreetbets" put their support behind GameStop and other heavily shorted companies, betting that share prices would rise even as Wall Street short-sellers — who bet on stock's decline by selling shares they don't own — gambled the exact opposite.
GameStop shares, which were worth about $19 at the beginning of January, climbed as high as $483 last week, a price surge so dramatic that TD Ameritrade and Robinhood placed restrictions on trading of the brick-and-mortar video game retailer. After plummeting on Thursday, GameStop shares made a dizzying recovery on Friday after Robinhood — facing a public outcry — said it would reinstate some trading.
The Wall Street Journal first reported Melvin's losses.
Melvin Capital, which was founded by Gabe Plotkin, started the year with about $12.5 billion in assets and ended the month with more than $8 billion after it received commitments from current investors for more capital in the final days of the month, the source said.
That money included $2.75 billion in funds that Citadel, a hedge fund owned by billionaire Ken Griffin, and Cohen's Point72 Asset Management said it would invest last week.
"The fund's portfolio liquidity is strong," the source said. "Use of leverage is at the lowest level since Melvin Capital's inception in 2014."
The stock-market rollercoaster, viewed by many as a war waged by the 99% against wealthy Wall Street titans, has raised questions among some lawmakers about increased regulatory oversight and concerns about non-professional investors who were seemingly blocked from trading GameStop shares for a brief period.
"For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price," Sen. Elizabeth Warren, D-Mass., said in a statement on Wednesday.
Warren, a 2020 presidential candidate and a leading proponent of strict laws to rein in Wall Street and the private equity industry, renewed her push for the Securities and Exchange Commission to more tightly regulate the market.
“It’s long past time for the SEC and other financial regulators to wake up and do their jobs — and with a new administration and Democrats running Congress, I intend to make sure they do," she said.
In a statement Friday, the SEC said it will work to protect "retail investors" by reviewing the recent trading volatility and pledged to scrutinize actions taken by "brokerages that may “disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.”
“We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws,” the SEC said.
It added: “The Commission is working closely with our regulatory partners, both across the government and at FINRA and other self-regulatory organizations, including the stock exchanges, to ensure that regulated entities uphold their obligations to protect investors and to identify and pursue potential wrongdoing.”