American investment firm, Melvin Capital endured heavy losses during the beginning of this year. They went through these losses during the GameStop short squeeze in January 2021. Let us begin the discussion about the extent of losses that were suffered by this firm, founded by Gabe Plotkin.
In January 2021, the fund reportedly lost more than 50 percent during the GameStop short squeeze. The heavy losses were because many investors stacked up stocks on the very popular fund, and the short bets unfortunately went askew and the fund ended up losing almost 50 percent of its assets.
The losses sustained by Gabe Plotkin’s Melvin Capital had recently received investment of nearly $3 billion by Steve Cohen’s Point72 and Ken Griffin’s Citadel, in exchange of non- controlling revenue shares of the fund.
It was reported by CNBC’S Andrew Ross Sorkinthat the Chief Executive Officer of Melvin Capital, and also the fund manager advised to close their short position in GameStop. On January 26, 2021, the position was closed, according to sources. It certainly was bad news for Melvin but GameStop gained around 140 percent more than the existing shares, which made GameStop stock the most shorted equity in the world.
LEGAL ISSUES FACED BY MELVIN CAPITAL.
After the events of GameStop 2021, Melvin Capital also had to face a number of legal issues. These issues include:
- Around nine lawsuits have targeted Melvin Capital for its behavior during the proceedings of GameStop.
- Melvin Capital, allegedly, participated in a “conspiracy” against retail investors.
- The allegations also include the fact that Melvin “made misstatements about their role in the conspiracy to the public”.
Melvin on the other hand contends these lawsuits “without merit”.
In February, their gain was around 22% but more than 75% gain is still needed.