Robinhood's CEO 'to be hauled before Congress to testify on GameStop trades' after Maxine Waters' pledge to investigate company amid allegations it was in the tank for hedge funds

  • Vlad Tenev is likely to be made to explain his company's actions last week 
  • The brokerage put limits on peoples' trading and sold some customers' shares
  • That led to accusations it was in the tank for hedge funds that had bet against GameStop after their shares rose more than 1,600 percent 
  • Maxine Waters, the California Democrat who is the powerful head of the House Financial Services Committee, is likely to call Tenev on February 18 
  • It comes as the leader of the Reddit army that poured into GameStop is said to have lost $5 million on his bet today as shares in the retailer dropped 31% 

Robinhood CEO Vlad Tenev is likely to be dragged in front of a Congressional committee to explain his company's actions amid a social media-fueled surge in GameStop shares.

The brokerage put limits on peoples' trading and sold some customers' shares without notification, leading to accusations of it being in the tank for hedge funds that had bet against GameStop. The retailer's shares rose more than 1,600 percent over the past month as investors traded tips on the Reddit message board.

Maxine Waters, the California Democrat who is the powerful head of the House Financial Services Committee, is likely to call Tenev on February 18, Politico reported, citing sources close to the matter.

Waters had said on MSNBC this weekend: 'I am concerned about whether or not Robinhood restricted the trading because there was collusion between Robinhood and some of the hedge funds that were involved with this.'

Robinhood had said in a statement that it had restricted users from purchasing certain shares this week because it struggled to meet deposit requirements with the clearinghouses behind the scenes of stock trading. 

Meanwhile, the leader of the Reddit army that poured into GameStop is said to have lost $5 million on his bet today. Keith Gill, the YouTuber also known as 'Roaring Kitty' was one of the leaders in the GameStop insurgency, promoting the potential for a short squeeze on his YouTube channel. 

Data posted to Twitter shows he lost millions as GameStop stock dropped more than 30 percent by closing bell Monday. 

Robinhood CEO Vlad Tenev is likely to be dragged in front of a Congressional committee to explain his company's actions amid a social media-fueled surge in GameStop shares

Robinhood CEO Vlad Tenev is likely to be dragged in front of a Congressional committee to explain his company's actions amid a social media-fueled surge in GameStop shares

Maxine Waters, the California Democrat who is the powerful head of the House Financial Services Committee, is likely to call Tenev on February 18, Politico reported, citing sources close to the matter

Maxine Waters, the California Democrat who is the powerful head of the House Financial Services Committee, is likely to call Tenev on February 18, Politico reported, citing sources close to the matter

The brokerage put limits on peoples' trading and sold some customers' shares without notification, leading some people to accuse it of being in the tank for hedge funds that had bet against GameStop

The brokerage put limits on peoples' trading and sold some customers' shares without notification, leading some people to accuse it of being in the tank for hedge funds that had bet against GameStop

On Monday it was also reported that Tenev's Robinhood received a further $2.4 billion injection from investors in an effort to keep trades flowing amid the huge Reddit-fueled rush in GameStop shares. 

The broker had already been forced to raise more than $1 billion from shareholders after small-time traders had last week driven the 1,600 percent rally in the shares of the video game retailer. 

The $3.4 billion raised - which according to The Wall Street Journal is more than it has gathered in its entire existence - came after the clearing house that handles all stock trades, the NSCC, demanded a $3 billion security deposit from the company.   

But even as the broker bolstered its balance sheet, investors were pulling away from GameStop. The stock was down by 30.77 percent by closing bell Monday.   

Robinhood had already been forced to restrict the purchase of 50 different stocks late on Friday in an effort to stop out-of-control trading; the company reduced that list to just eight companies by Monday. 

They are: GameStop Corp., AMC Entertainment Holdings Inc., BlackBerry Ltd., Express Inc., Genius Brands International Inc., Koss Corp., Naked Brand Group Ltd. and Nokia Oyj.

Friday's list had included blue-chip names Starbucks and General Motors. Vaccine makers Moderna and NovaVax were also included. The move was an apparent act of desperation as the company's cash reserves were stretched to the limit.     

It comes as Minneapolis Fed President Neel Kashkari said Monday that he is 'not fazed by the fact there’s speculation going on in the market'. 

While the Fed does not directly regulate stock trading, his comments could give a hint of a possible hands-off approach when it comes to what's to come with the other regulators that do. 

By closing bell Monday the market saw Gamestop's shares down nearly 31%

By closing bell Monday the market saw Gamestop's shares down nearly 31%

Cinema chain AMC, another stock targeted by online traders, finished just up by closing bell

 Cinema chain AMC, another stock targeted by online traders, finished just up by closing bell

Now silver has become the latest example of the influence wielded by followers of WallStreetBets targeting inequality in the global financial system

 Now silver has become the latest example of the influence wielded by followers of WallStreetBets targeting inequality in the global financial system

The army of amateur investors behind the GamesStop stock surge saga bought a massive digital advertisement appeared on the corner of 54th Street and Broadway in New York's Midtown on Friday reading, '$GME GO BRRR'

The army of amateur investors behind the GamesStop stock surge saga bought a massive digital advertisement appeared on the corner of 54th Street and Broadway in New York's Midtown on Friday reading, '$GME GO BRRR'

The eight stocks that Robinhood is limiting purchase of

GameStop Corp.

AMC Entertainment Holdings Inc.

BlackBerry Ltd.

Express Inc.

Genius Brands International Inc.

Koss Corp.

Naked Brand Group Ltd. 

Nokia Oyj

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Cinema chain AMC, another stock targeted by online traders, finished just up by closing bell. 

Instead of zeroing in on stocks, day traders now have apparently turned their sights to silver with prices jumping as much as 13 per cent Monday.

On Twitter, #silversqueeze was trending as investors looked to the latest market strategy to emerge from the 'WallStreetBets' forum on Reddit. Silver had already been up 6 per cent last week.   

Reddit CEO Steve Huffman on Monday refused to say if Securities and Exchange Commission has contacted him over wallstreetbets, arguing 'people talking about their trades is perfectly legal'. 

Huffman said regulators will 'see if anything crossed the line'.  

Probed by The New York Times on whether Reddit had been contacted by the SEC Huffman said: 'If and when they contact us, I would not be able to disclose that.' 

The SEC last week said it was monitoring markets, but didn't detail any actions it might take - or not take.

As the day traders bought up silver, analysts of normally sleepy metal markets took notice. 

'You can understand why silver is attracting the attentions of the social media traders who are looking to vent their fury upon, and profit from, short sellers,' says Russ Mould at AJ Bell.

'Allegations about, and fines for, investment banks rigging precious metal markets have abounded for some time. 

'More fundamentally, money supply is surging, markets more generally are watching carefully for any signs of inflation and precious metals are traditionally seen as a potential hedge here.'  

US bullion broker, Apmex, said it was forced to stop sales of silver over the weekend after a ‘dramatic shift’ in demand in recent days.

‘For example, the ratio of ounces sold per day was running about two times earlier in the week and closer to four times the average demand by the end of the week, said Ken Lewis, the chief executive of Apmex.  

What is the NSCC?

The NSCC is a subsidiary of DTCC. 

The DTCC is the institution that actually performs the exchange of stocks for cash, where securities are deposited for safekeeping as trades are being executed, enabling the instant buying and selling of stock even though the actual settlement of the trades takes a day or more.

Brokerages have to post money with the DTCC to cover trades while they wait for their customer's trades to settle.

Normally, those deposit requirements are manageable, because brokers have customers both buying and selling the same stocks, so if the broker fails their book with the DTCC balances out.   

But the situation this week and last at Robinhood was anything but normal, with massive numbers of users buying up GameStop shares and very few selling. At one point, an estimated half of Robinhood's 13 million users owned some GameStop stock.

The lopsided trading caused Robinhood's deposit requirements with the DTCC to skyrocket tenfold, the company said.

A spokesman for the DTCC wouldn’t specify how much it required from specific firms but told Bloomberg that by the end of Friday, industrywide collateral requirements had jumped to $33.5 billion, up from $26 billion.  

The cash requirements stretched Robinhood to the limit, even after it tapped investors for an emergency $1 billion fundraising round and reportedly tapped credit lines for another $600 million.

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The iShares Silver Trust ETF jumped 9.3% as silver broke above $30 an ounce for the first time since 2013 with an army of retail traders storming into the metal after betting billions of dollars on stocks last week.

Silver miners Hecla Mining Co, Coeur Mining Inc and Wheaton Precious Metals Corp surged between 5.5% and 35%. 

But analysts have warned that it may prove much harder for small investors to squeeze short sellers as the silver market is deeper than that for smaller stocks like Gamestop.

Neil Wilson at Markets.com said: 'Despite appearances this morning it’s going to a lot harder to squeeze silver shorts as the market is so much deeper and more liquid. 

Also, unlike Gamestop - a company which has been struggling in recent years and for this reason targeted by short-sellers - silver prices have actually been rising over the past year. Spot silver is up 65 per cent compared to a year ago.

Freetrade senior analyst Dan Lane said that while the mass movement into silver might be the internet’s latest revolt against the financial elites, it chimes with more widespread renewed interest in precious metals. 

'There is now a significant global interest in shorting silver at the moment and banks hold a lot of that,' he said.   

Speaking during a virtual event hosted by Tesla CEO Elon Musk, Robinhood CEO Vladimir Tenev offered an explanation behind his company's decision to Thursday to restrict the purchase of GameStop shares and several other stocks. 

At 3 a.m. on Thursday, Tenev said that Robinhood's operations team was sent a file by the clearinghouse that handles all stock trades - the National Securities Clearing Corporation (NSCC) - requesting a security deposit of $3 billion. 

It came after the army of amateur investors behind the GamesStop stock surge saga bought a massive digital advertisement appeared on the corner of 54th Street and Broadway in New York's Midtown on Friday reading, '$GME GO BRRR'. 

The message is a reference to the popular internet meme 'Money Printer Go Brrr', mimicking the sound of a cash printing machine, while 'GME' is the NY Stock Exchange ticker symbol for GameStop. 

On the west coast, a plane was spotted flying a banner over Santa Monica reading, 'WE ARE ALL GAMESTOP WALLSTREETBETS'. 

The precious metal price has jumped after being targeted by Reddit traders

The precious metal price has jumped after being targeted by Reddit traders

GameStop shares surged last week as part of a campaign promoted on Reddit

The statement sheds some new light on the surreal events of the week, in which GameStop shares surged as part of a campaign promoted on Reddit

U.S. stocks were up sharply on Monday afternoon following a steep sell-off last week. 

The Dow Jones Industrial Average rose 317.28 points, or 1.06%, to 30,299.9, the S&P 500 gained 66.71 points, or 1.80%, to 3,780.95 and the Nasdaq Composite added 340.60 points, or 2.61%, to 13,411.29. 

The trading frenzy came to a head on Wednesday, when GameStop shares shot up 135 percent in a single day, inflicting billions of dollars of potential losses on prominent hedge funds.

On Thursday, Robinhood began banning the purchase of stock in GameStop and several other companies that had been touted on Reddit. 

The free trading app is wildly popular with members of the Reddit forum WallStreetBets, where the insurgency began, and the Robinhood's move drew harsh criticism from users as well as politicians across the ideological spectrum.  

Robinhood had already insisted that the restrictions are only temporary. 'Our goal is to enable purchasing for all securities on our platform,' the company said. 

CEO Tenev said that he and the company's Chief Operating Officer called the 'higher-ups' at the NSCC to 'figure out what's going on.'

The NSCC agreed to lower the deposit amount to $1.4 billion, with Tenev saying that that was 'still a high number' before the team proposed how to manage the risk throughout the day, 'marking these volatile stocks - that were driving the activity - [with] positioning closing only,' he said.

'So, at 5.30, or five in the morning, they [the NSCC] came back and they said okay, the deposit [should be] 700 million, which we then deposited and paid promptly. And then, everything was fine,' he said. 

GameStop stock had risen another 67% on Friday during a staggering rally

GameStop stock had risen another 67% on Friday during a staggering rally

'This is a dynamic, volatile market, and we have and may continue to take action to make sure we meet our requirements as a broker so we can continue to serve our customers for the long term,' Robinhood added.

Robinhood was not the only trading platform to implement trading restrictions. TD Ameritrade also had restrictions on buying shares in 19 companies, most of them with heavily shorted stock. 

The online army of Reddit traders have over the past week rallied to defend out-of-favor companies such as GameStop and AMC, defeating hedge funds that had bet the shares would fall by selling them short, in a stunning reversal of financial power transfixing Wall Street.  

 

Reddit traders send silver price to eight-year highs: Precious metal soars 12% as renegade investors pile in to put squeeze on short-sellers

Silver prices jumped to eight-year highs this morning after the Reddit brigade of traders that targeted Gamestop turned their attention to the precious metal.

The Reddit thread r/wallstreetbets had multiple mentions of the hashtag #silversqueeze, where users encouraged each other to buy silver, sending the metal price soaring.  

Spot silver has risen as much as 12 per cent to $30.17 an ounce, an increase of almost 20 per cent over the last five days and the highest price since February 2013.   

The frenzied activity in the precious metal is the latest of an online movement by retail traders to push up values of assets that big fund managers had bet against.    

'You can understand why silver is attracting the attentions of the social media traders who are looking to vent their fury upon, and profit from, short sellers,' says Russ Mould at AJ Bell.

'Allegations about, and fines for, investment banks rigging precious metal markets have abounded for some time. 

'More fundamentally, money supply is surging, markets more generally are watching carefully for any signs of inflation and precious metals are traditionally seen as a potential hedge here.' 

Traders piled in silver by buying shares in silver mining companies as well as exchange-traded funds (ETFs) backed by physical silver bars, in a GameStop-style short-squeeze.

Shares in Fresnillo - an Anglo-Mexican precious metal mining FTSE 100 company - were up over 18 per cent to £11.69 in morning trading on Monday. 

Interactive investor told This is Money that companies and ETFs involved in the mining of silver and precious metals accounted for five of the 10 most traded investments on their platform this morning. 

Fresnillo was the highest ranking in first, followed by iShares Physical Silver (second positon) and Alien Metals (third), which mines silver among other precious metals and base metals.

WisdomTree Physical Platinum ETC was the fifth most traded investment, while Hochschild Mining – an underground precious metals producer focusing on high grade silver and gold deposits - came in seventh place. 

On the up: The price of silver has soared around 20% since Thursday

On the up: The price of silver has soared around 20% since Thursday

Is #silversqueeze actually a Trojan horse counter-attack from the hedge funds?

Some Reddit users in the forums threads r/wallstreetbets and r/Wallstreetsilver have argued that precious metals prices have been kept artificially low - and that a surge in the price of silver could hurt large financial companies. 

'Think about the Gainz. If you don't care about the gains, think about the banks like JP Morgan you'd be destroying along the way,' said Reddit user RocketBoomGo in a widely circulated post. 

However, some other users are arguing that the #silversqueeze is a 'hedge-fund coordinated attack' to distract them from the Gamestop fight.  

The post on the forum warns: 'By buying silver/going long on silver, you would be directly putting money into the pockets of the EXACT HEDGE FUNDS ON THE OTHER SIDE OF $GME The hedge funds are LONG silver NOT short silver.

'The media, Wall Street, normies, and every other non-WSB autist are trying to push you to buy silver. This would be a tragic, irreversible decision that not only will most likely not make you any money because the squeeze is fake, it will put you on the sidelines from this righteous and glorious war we are in.

'If you are looking for alternative investments to GME, I’d recommend simply getting in on the $BANG GANG- Blackberry, AMC, Nokia, and GME.'

Another popular post says: 'There is no silver short squeeze happening. NONE. NEVER.'

'Silver might go up nicely and for a time but don't get high on hopium, this is not gonna got in the 100s.'

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Myron Jobson, personal finance campaigner at interactive investor, says it remains to be seen if the surge in silver will continue.

'We believe that silver and gold exposure is something from which many investment portfolios would benefit given its potential to enhance portfolio diversification – but only as a satellite holding,' he said.

'We believe exposure to silver, gold and other base metals is best achieved through quality bullion funds or exchange traded commodities, which offers an easy, flexible and cheap way to invest in these assets.' 

Investment platform AJ Bell said that among ETFs, three specific silver ETFs were in the top ten most purchased investments over the past day.

iShares Physical Silver was the second most purchased ETF,  WisdomTree Silver 3x Daily Leveraged came in sixth place, while Wisdom Tree Physical Silver was in ninth position. 

'Looking back a bit further and it is clear this is a new trend,' AJ Bell said. 

'Over the past week only iShares Physical Silver is in the top 10 and looking back one month and none of them are in the top ten.'

Data from iShares Silver Trust ETF on Friday showed over 37million shares were created in one day, each one representing an ounce of silver.

Buying an ETF can boost silver prices by increasing the number of shares in the fund and making its operator buy more metal to back them.

A US bullion broker, Apmex, said it was forced to stop sales of silver over the weekend after a ‘dramatic shift’ in demand in recent days.

‘For example, the ratio of ounces sold per day was running about two times earlier in the week and closer to four times the average demand by the end of the week, said Ken Lewis, the chief executive of Apmex. 

But analysts have warned that it may prove much harder for small investors to squeeze short sellers as the silver market is deeper than that for smaller stocks like Gamestop.

Beware what happened to the Hunt Brothers in 1980...

Parallels have been drawn with what happened in the 1980s when the Hunt brothers tried to corner the silver market. 

The oil barons – Nelson Bunker, Lamar and William Herbert – tried to buy up as much silver as they could in 1980 in an attempt to protect their wealth from inflation.

They seemingly managed to control a third of the freely available supply, excluding that which resided in government or central bank vaults.

However, industrial buyers of silver complained about the increase in their raw material costs and regulators stepped in to limit how much silver could be bought on margin or using borrowed cash.

The move sent the price of silver plunging and the rich Hunt brothers eventually saw their business empire collapse under the weight of its losses on silver.  

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Neil Wilson at Markets.com said: 'Despite appearances this morning it’s going to a lot harder to squeeze silver shorts as the market is so much deeper and more liquid.

He also suggested that big investors may be driving the surge, not just small ones: 'We should also note that some bigger smart money may have be front-running this trade to piggyback the rally and further fuelling the move up. (George Soros: “When I see a bubble forming, I rush in to buy, adding fuel to the fire.”)'

He added: 'Targeting physically backed ETFs like SLV may be smart, as it will drive physical demand and push up spot prices perhaps more acutely than just by trading futures. I would reiterate that this kind of herding to coordinate a squeeze up is risky and likely to create a bubble that will hurt more than helps on the way down.' 

Also, unlike Gamestop - a company which has been struggling in recent years and for this reason targeted by short-sellers - silver prices have actually been rising over the past year. Spot silver is up 65 per cent compared to a year ago.

Freetrade senior analyst Dan Lane said that while the mass movement into silver might be the internet’s latest revolt against the financial elites, it chimes with more widespread renewed interest in precious metals. 

'There is now a significant global interest in shorting silver at the moment and banks hold a lot of that,' he said.

'But, stocks and commodities weren’t born equal - we don’t know whether the shorts have other hedges in place, in the physical metal as opposed to an ETF.'

Richard Hunter, head of markets at interactive investor, has consistently urged extreme caution when it to chasing trend and short terms movements –' this army of keyboard warriors and those who follow them could easily get hit by their own shrapnel.'

 

Robinhood CEO reveals the NSCC demanded $3BILLION security at 3am the morning before company stopped GameStop trades amid Reddit frenzy

The CEO of Robinhood has revealed that the clearing house that handles all stock trades, the NSCC, demanded a $3 billion security at 3am in the morning during dramatic negotiations before the company stopped GameStop trades. 

Speaking during a virtual event hosted by Tesla CEO Elon Musk, Vladimir Tenev offered an explanation behind his company's decision to Thursday to restrict the purchase of GameStop shares and several other stocks.

The controversial move, that sparked widespread outrage, came after short selling hedge funds lost billions when Redditors organized on the WallStreetBets page banded together to drive up the price of the video game retailer's share price, resulting in hedge funds losing billions of dollars. 

At 3 a.m. on Thursday, Tenev said that Robinhood's operations team was sent a file by the clearinghouse that handles all stock trades - the National Securities Clearing Corporation (NSCC) - requesting a security deposit of $3 billion.

Robinhood CEO Vlad Tenev is seen above. Speaking to Elon Musk on Sunday, that the NSCC demanded a $3 billion security deposit the morning before the company stopped GameStop trades, sparking outrage among the app's users

Robinhood CEO Vlad Tenev is seen above. Speaking to Elon Musk on Sunday, that the NSCC demanded a $3 billion security deposit the morning before the company stopped GameStop trades, sparking outrage among the app's users

'We have to put up money to the NSCC based on some factors including things like the volatility of the trading activity into certain securities,' he explained during a Clubhouse virtual event on Sunday night.

'And this is the equities business so it’s based on stock trading and not options trading or anything else.'

'So, they give us a file with the deposit and the request was around $3 billion, which is, you know, about an order of magnitude more than what it typically is.'

Musk continued to press Tenev for answers, asking 'Everyone wants to know did something shady go down here?', to which Robinhood's CEO denied, saying the NSCC was 'reasonable' despite the request.

'I wouldn’t impute shadiness to it or anything like that and actually you know the NSPCC was reasonable,' he said, before adding that the regulator worked with Robinhood to lower the amount.

Musk pressed again, asking 'is anyone holding your hostage right now?' probing Tenev on whether the NSCC was bullying the trading app.

Elon Musk was involved at the start of the Reddit frenzy when he tweeted a link to the Reddit board with the word 'Gamestonk!!'.

Elon Musk was involved at the start of the Reddit frenzy when he tweeted a link to the Reddit board with the word 'Gamestonk!!'.

Tenev avoided the question, saying 'thanks for asking', before calling the experience 'nerve wracking' and saying he was asleep at the time of the request.

He went on to tell Musk that he and the company's Chief Operating Officer called the 'higher-ups' at the NSCC to 'figure out what's going on.'

The NSCC agreed to lower the deposit amount to $1.4 billion, with Tenev saying that that was 'still a high number' before the team proposed how to manage the risk throughout the day, 'marking these volatile stocks - that were driving the activity - [with] positioning closing only,' he said.

'So, at 5.30, or five in the morning, they [the NSCC] came back and they said okay, the deposit [should be] 700 million, which we then deposited and paid promptly. And then, everything was fine,' he said.

He went on to acknowledge that as a result, 'this was a bad outcome for our customers. Part of what’s been really difficult is Robinhood stands for democratizing access to stocks.

Elon Musk was involved at the start of the Reddit frenzy when he tweeted a link to the Reddit board with the word 'Gamestonk!!'. In the hours following his Tweet on Tuesday, GameStop shares rocketed 60 percent

Elon Musk was involved at the start of the Reddit frenzy when he tweeted a link to the Reddit board with the word 'Gamestonk!!'. In the hours following his Tweet on Tuesday, GameStop shares rocketed 60 percent

'Yes, we want to give people access so we had no choice in this case, we had to conform to our regulatory capital requirements,' he said.

'So it sounds like this organization calls you up and they basically have a gun to your head,' Musk said. 'Either you put up this money or else. Basically, what people are wondering is did you sell your clients down the river? Or did you have no choice?'

'I think that's fair,' Tenev replied, saying 'We have to comply with these requirements, financial institutions have requirements.'

The Robinhood controversy arose after millions of Redditors fought back against Wall Street hedge funds short selling GameStop stock.

Elon Musk was involved at the start of the Reddit frenzy when he tweeted a link to the Reddit board with the word 'Gamestonk!!'. In the hours following his Tweet on Tuesday, GameStop shares rocketed 60 percent. 

Musk's call-outs to certain companies have influenced companies in the past, and has faced issues with the SEC for tweeting about Tesla's stock.  

Claims also circulated on social media Thursday that Robinhood was forcibly selling off shares of GameStop without the account holder's permission
Claims also circulated on social media Thursday that Robinhood was forcibly selling off shares of GameStop without the account holder's permission

Claims circulated on social media Thursday that Robinhood was forcibly selling off shares of GameStop without the account holder's permission after it blocked users from buying shares

What is the Reddit shares trading frenzy?

GameStop is one of the most heavily shorted stocks on the market, with more contracts to sell the stock short than there are shares available.

'Short selling' allows an investor to profit when the price of a share drops. Short sellers borrow a stock, sell the stock, and then buy the stock back to return it to the lender.

Reddit users saw an opportunity for what is known as a 'short squeeze', in which rising share prices force short sellers to buy more of the stock to cover their losses.

Users of the Reddit group WallStreetBets were urging members to buy and hold GameStop stock, locking up the supply of shares and forcing desperate hedge funds to bid higher and higher to cover their shorts.

It is a bubble that could burst at any time, if investors decide to cash out and a selling spree ensues. Most professional investors agree that GameStop's earning potential does not justify the current share price.

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Users saw an opportunity for what is known as a 'short squeeze', in which rising share prices force short sellers to buy more of the stock to cover their losses. 

Short sellers make money by betting that a stock will drop in price. They borrow a stock and sell it, with expectation that it will drop in price.

They then buy the stock back once it has dropped in price and return it to the lender, making a profit on the price difference.

However, in the case of GmaeStop, a seven-million strong army of Redditors, organized on the Reddit forum Wallstreetbets, saw that it was being shorted. 

They banded together to drive the share prices of GameStop and other heavily-shorted companies up in an attempt to 'stick it to the shorts'.

As a result, those betting against GameStop are down $19.75 billion this year, according to market analysts S3, including a further $8 billion loss on Friday after the stock leapt another 68 percent.

On Sunday The Wall Street Journal reported that one hedge fund, Melvin Capital Management, which has borne the brunt of losses from the soaring stock prices of heavily shorted stocks, lost 53 per cent on its investments in January. 

Melvin Capital, which had bet against GameStop, had to be bailed out because of the roughly $4.5 billion losses it suffered in the frenzy.

Melvin Capital and another that suffered heavy losses, Citron Capital, announced they would stop the practice of short selling.

Citron Capital's founder said its focus would be instead be on 'long' opportunities - or, betting on companies to succeed rather than fail.

Melvin Capital started the year looking after around $12.75 billion of funds, but this is said to have fallen dramatically to $8 billion, which includes a $2.75 billion bailout from two other hedge funds - Citadel and Point72.

But while some have suffered, other Wall Street investors have made large profits.

American asset manager Fiedlity, which holds a 13.7 percent stake in Gamestop making it the company's top shareholder, saw its share rise to $3.1 billion.

BlackRock's 11.3 per cent stake is now worth $2.6 billion, while the Norwegian sovereign wealth fund owns almost $600 million worth of GameStop shares.

Individuals also saw windfalls, with Michigan based billionaire Donald Ross who bought a five percent stake in GameStop last year for for a reported $12.5 million, saw its value rise to just over $1 billion.

The company's chief executive George Sherman has also seen his 3.4 percent stake rise from $44 million at the start of the year to almost $800 million.

How does 'shorting' a stock actually work? 

Stocks typically benefit investors if the price goes up - they buy stock, the price increases if the company does well, then they sell it for a profit.

But there is a way to reverse that process. Known as 'shorting', it involves placing a bet against a company that means a trader makes money when the value goes down.

To do this, a trader borrows stock off a broker, usually for a fee, which they immediately sell - but with a clause saying that they have to buy back that stock by a certain date and return it to the broker.

If the value of the stock goes down, then the trader buys it back for less than the sale price, returning the stock to the broker along with the fee and keeping the rest of the money for themselves.

But, if the stock price rises, they will be forced to buy for more than the sale price, making a loss in the process.

While this sometimes happens by accident, other traders can deliberately boost the price in a process known as a 'short squeeze' - which is what Reddit did.

This benefits the 'squeezers' because they know that at some point, the short-sellers will be legally obliged to buy back their borrowed stocks, driving the price up further.  

It also inflicts heavy losses on the short-sellers, since the amount they lose is tied to the amount the stock rises - they are effectively 'punished' for betting against the company, which is what some Redditors appear to be interested in.  

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Robinhood on Thursday began restricting the purchase of GameStop shares and several other stocks, provoking outrage as little investors were locked out while big hedge funds and wealthy traders were free to buy and sell. 

Claims also circulated on social media that Robinhood was forcibly selling off shares of GameStop without the account holder's permission, and the moves drew furious outcry. 

Several lawsuits have been filed against Robinhood in the US. In one in New York, a user said the company removed Gamestop during an 'unprecedented stock rise'. 

The controversial stock trading platform denied the accusations on Saturday saying that it forced users to sell shares of GameStop last week - unless those shares were bought using borrowed funds. 

'Claims that Robinhood proactively sold customers' shares outside of our standard margin-related sellouts or options assignment procedures are false,' a Robinhood spokesperson told DailyMail.com on Saturday.

Buying shares 'on margin' means using funds lent from the broker, and it is not unusual for brokers to automatically liquidate such shares if an account falls below minimum balance requirements. 

On Robinhood, users need an account balance of at least $2,000 to trade on margin.

Robinhood's restrictions on GameStop shares spurred furious accusations that the company was trying to tank the stock for nefarious purposes, but Robinhood CEO Vlad Tenev strongly denied the allegations. 

He said the company clamped down in order meet deposit requirements at the main trading clearinghouse amid extreme volatility.  

The Securities and Exchange Commission suggested in a statement on Friday that it is looking into the matter.

The SEC said it will 'closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.' 

On Friday, Robinhood lifted its total ban on buying GameStop stock, but limited users to accumulating only one share, unless they already owned more. 

On Friday, Vlad Tenev refuted the 'conspiracy theory' that hedge funds prompted his company to halt trading on GameStop. 

During an interview with Yahoo Finance, Tenev was asked to set the record straight on why the mobile brokerage firm made the decision to restrict trades involving GameStop shares as prices surged last week. 

'Oh, on that conspiracy theory, I think I've over and over again said that it's not true,' Tenev said. 

'Our decision to temporarily restrict customers from buying certain securities had nothing to do with a market maker or a market participant or anyone like that putting pressure on us or asking us to do that. 

'It was entirely about market dynamics and clearinghouse deposit requirements, as per regulation,' he added.