GameStop scolds billionaire Steve Cohen for reopening hedge fund, Robinhood IPO halts

The recent GameStop trading frenzy has prompted legendary trader Steve Cohen to reopen his hedge fund, Point 72 Asset Management, to new investors, FOX Business has learned.

The reason? Well it depends on who you ask.

Over the past few weeks, Cohen’s hedge fund has been hit hard by the GameStop imbroglio, down 15% in January largely thanks to a Point 72 investment in Melvin Capital.

Teleprinter	security	Latest	Change	% Change
GME	GAMESTOP CORP	225.00	-100.00	-30.77%

Shares fell an additional 31% on Monday.

Melvin, led by Cohen’s protégé Gabe Plotkin, was the target of a ‘bear raid’ which focused on heavily sold stocks that were captured by legions of day traders using their Robinhood trading app. . Melvin was running out of GameStop stock, betting it would drop, but instead it rose 1,700% in just a few weeks before leveling off in recent days.

But the damage to many short films, including Melvin – and by extension Point 72 – was already done. Losses of more than 50% for Melvin required a cash injection by Cohen of $ 750 million in order to keep the fund afloat. Billionaire Ken Griffin’s Citadel has plummeted an additional $ 2.75 billion.

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The investments were announced last Monday, and then quietly on Tuesday, Point 72 began approaching Morgan Stanley brokers saying it had reopened the fund to new investors and that they could offer their clients, FOX Business confirmed. .

It is not known what other brokerage firms can now sell Point 72; Morgan Stanley is considered the largest brokerage firm on Wall Street with approximately 16,000 financial advisers serving small investors.

After raising $ 10 billion earlier in the year, Point 72 stopped accepting new clients as it had to digest the new influx of cash.

The Point 72 about-face surprised Wall Street executives because it was not well telegraphed. Cohen had become a frequent Twitter user after his purchase of the New York Mets over the summer, only to shut down his account after news about Melvin and his untimely short sale of GameStop and a social media feud with the founder of Barstool Sports, Dave Portnoy.

Wall Street executives say Cohen may look to replace his lost capital with new cash due to the heavy losses he suffered while investing in Melvin. A person close to Point 72 tells FOX Business the fund is not facing a crisis of any kind and Cohen believes the time has come to raise new liquidity amid a market turmoil over issues of GameStop.

A spokesperson for Point 72 declined to comment. A Morgan Stanley spokesperson made no immediate comment.

The frenzy involving GameStop and a handful of very short stocks underscores the changing dynamics of the stock market. Armed without commission trading apps like Robinhood and with the ability to borrow heavily, on a small scale, for the first time, retail investors are flexing their muscles in the markets like never before.

They regularly share stock information on message boards, then target investments in unison, pushing stocks up to levels never seen before and at least for now, causing massive losses even to sophisticated investors in the world. other side of their transactions.

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The frenzy they created in the markets sparked bipartisan calls for tighter regulation. The worry is that these investors are both inexperienced and outbid far beyond where they should trade given the lukewarm business outlook for target companies. Once the frenzy is over, stocks will trade significantly lower resulting in massive losses for many small investors who were speculating in a market they did not fully understand.

Teleprinter	security	Latest	Change	% Change
AMC	AMC ENTERTAINMENT HOLDINGS INC	1:30 p.m.	+0.04	+ 0.30%
BB	BLACKBERRY LIMITED	14.63	+0.53	+ 3.76%
BBBY	BED BATH & BEYOND INC.	30.26	-5.07	-14.35%

Many of these newbies say they are just turning the tide on some of Wall Street’s top traders. Recently, these investors have started to focus not only on GameStop but others including AMC, Blackberry and Bed Bath & Beyond – former penny stocks – which were short by hedge funds.

In December, they launched a bearish raid on stocks, pushing them higher and pushing them to astronomical levels. Funds we are short of stocks such as Melvin and to a lesser extent Point 72 suffered significant losses.

In a short sale, a trader borrows a stock, sells it, and hopes to profit by buying it back at a lower price to pay off the borrower. But when stocks go up, as they did with GameStop and others, the hedge fund loses money; in Melvin’s case, he lost so much money that he needed a bailout from Point 72 and Citadel.

Robinhood also needed some sort of rescue. Last week, the app was forced to lock down trading in GameStop and other stocks because it didn’t have enough capital to settle trades. On Friday of last week, it raised $ 1 billion to meet its settlement capital needs, and on Monday it raised an additional $ 2.4 billion.

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As FOX Business was the first to report, people with direct knowledge of the matter say Robinhood has indefinitely suspended its public disclosure plans through an initial public offering it was considering this year.

Robinhood currently has around 13 million users, up from 500,000 in just six years. Its greatest growth has come more recently, particularly during COVID-19 lockdowns when people – mostly uninformed first-time investors – used the app as a form of entertainment. The stock market’s recovery from its pandemic low in early March also attracted new users.

But with growth came increasing pains; people close to the company agree that Robinhood eventually needs to further expand its balance sheet and secure its compliance systems before it goes public and faces even greater regulatory scrutiny.

A Robinhood spokesperson did not respond to an email for comment.