How Robinhood and GameStop Shine Light on Regulatory Shortcomings

Investing be a rather complex and confusing matter, especially for people not as familiar with the finer intricacies of the stock market. Even with proper due diligence, and a large amount of research, there are no free gifts when it comes to the investment market.

With that being said, of course there are numerous ways to invest money for a rainy day, but this content is specifically focused on the stock market, and a recent chain of events that could have major ramifications later down the road. Calling upon or a similar service can help navigate these sometimes precarious financial planning decisions which can be treacherous to overcome b yourself.

Video game store GameStop has had a rollercoaster of a ride over the past month.

In recent weeks, the struggling company’s shares surged more than 400 percent in a single week – and over 1625 percent in 2021 alone. It finished that week as the third-largest stock short, according to S3 Partners predictive analytics group, trailing only behind Tesla and Apple.

Battling against Wall Street investors’ predictions that GameStop would ultimately crash and burn, Reddit investors as part of the WallStreetBets subreddit decided to battle back. And this ongoing war now means billions of dollars are in play during the high-stakes financial battle.

In October, GameStop shares were less than $10 a piece, but closed at $325 on January 28, 2021.

What’s Happening?

In a battle of hedge funds vs. regular investors, the common man tends to lose out almost every time. However, that wasn’t the case this time, and there is plenty of animosity and anger due to this entire situation.

“This is a great conversation that the whole world is having right now,” said Jaime Rogozinski, the founder and former moderator of WallStreetBets, in an interview with NPR’s All Things Considered. “It’s the democratization of financial markets. It’s giving a voice to the people that didn’t previously have one.”

A major hedge fund company, Melvin Capital Management, suffered a massive 53 percent loss in January, stemming from GameStop’s unexpected success. Without a doubt, other companies will report a major ding in their financial reports due to the GameStop success.

Sen. Elizabeth Warren (D-Mass.) publicly stated that the SEC needs to have clear rules regarding market manipulation, urging regulatory bodies to step in. What may or may not happen from this entire incident remains to be seen, with a lot of happy investors, yet plenty of upset hedge fund managers.

How is GameStop Actually Doing?

To put it bluntly, the company is still struggling. Even with the sudden surge thanks to craft investors on Reddit, don’t be mistaken: GameStop is still very much in financial dire straits. The company has endured declined sales while ramping up store closures, despite the massive stock gains.

GameStop Q3 earnings dropped 30 percent year-over-year, a definitely troubling sign since the video game industry overall has seen increased revenue. Overall, the game industry has seen a continued sharp rise in revenue, due to many Americans forced out of school and their workplace due to the Covid-19 pandemic.

Ultimately, GameStop will continue to struggle with even more gamers electing to download their games, rather than head to the local store to buy a physical copy. Thanks to console launches, however, GameStop has been able to fight off completely going out of business – and will only need to continue the fight moving further into 2021, and beyond.

What’s the Attention on Robinhood?

Wall Street and regulators have struggled to keep up with the times, which has led to the rise in popularity of services such as Robinhood. Robinhood is an app which offers commission-free stock trading, investment tips, and lets investors purchase fractional shares of stocks.

Thanks to WallStreetBets, Robinhood suddenly faced crippling money demands, and was forced to raise more than $1 billion from investors. The company made the rather asinine decision to block individual investors from the opportunity to purchase heavily shorted stocks, so investors either had to hang on to the shares – or sell them. Naturally, in a true David vs. Goliath scenarios, the hedge funds were still allowed to continue sharing GameStop as they saw fit.

It didn’t take long before class-action lawsuits were filed against Robinhood, though they likely will prove difficult to win in the end.

The US Securities and Exchange Commission (SEC) already had its sights on Robinhood, accusing the app of misleading customers about revenue sources, and failed to properly execute customers’ orders. Due to this likely shady behavior, customers lost tens of millions of dollars, the SEC alleged in late 2020.

Final Thoughts

The fallout from this unforeseen chaos in early 2021 will continue to ripple throughout the financial market for the immediate future.  Robinhood might need to deal with some legal ramifications from the GameStop short – and past questionable business activities – and the US government will keep a closer eye on the current investment market.

Looking ahead, Reddit investors have their sights on other stocks to try to launch sky high in the future. Struggling movie theater chain AMC, Bed, Bath & Beyond, along with other beleaguered companies that need a boost.

Author’s Bio

Yunas Chaudhry is a super-connector with AYC Web Solutions who helps businesses find their audience online through outreach, partnerships, Photography, branding and networking. He frequently writes about the latest advancements in digital marketing and focuses his efforts on developing customized blogger outreach plans depending on the industry stainless steel tongue scraper and competition.


There are 0 comments on this post

Leave A Comment