I have no skin in this game (neither GME or Robinhood), but lets try to stay informed and not grab pitchforks based on non proven allegations.
Then they came out and said it was a liquidity issue. If it was simply a liquidity issue, why weren't just margin orders halted? Why did they stop people with cash in their hand from buying stock?
None of Robinhood's statements provide a full explanation. People are within their right to be absolutely livid at this moment and demand answers.
Some facts:
1) There is a conflict of interest when Robinhood routes the majority of trades through a high frequency trading firm that has an interest in short positions. Citadel bailed out Melvin who [probably] illegally naked shorted 150% of the float.
2) The CNBC interview explaining the liquidity issues that aired today was filmed yesterday.
3) Mainstream media has been feeding lies to the public. Who is buying the stock? (It's foreign entities who hate America and capitalism!) Will the SEC come after the little guy?! Can they sue these investors?! (Absolutely not. Why the hell are you trying to put fear and doubt in the heads of these people?)
These facts along with Robinhood's BS explanations lead people to believe that the reason that this happened is simply that the WRONG PEOPLE LOST MONEY.
Yeah. Misinformation.
#1. Melvin seems to have held a significant number of puts as far as I can tell.
#2. Even if they were stupid enough to short 150% of the available shares, I don't believe there's anything illegal about that.
Why not?
Person A has 100 shares. Melvin borrows 40 shares from A, and sells it to Person B.
Person A + Person B now have 140 shares combined (while Melvin has -40 shares). If PersonA + PersonB agree to loan shares to Melvin for another short sell, they've become able to drop to -140 shares, by borrowing 60 of Person A's remaining shares, and then 40 shares from B.
Nothing illegal here, as long as Person A and Person B agree to the terms.
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And again: Melvin seemed to hold puts, not shorts. So this entire point is moot anyway. Puts are a bear-bet, but they're kind of unrelated to short-selling.
Also there are still outstanding questions regarding liquidity issues: why did they not first disallow margin buying, then possibly with unsettled funds? did these knobs not exist? was there some sort of mismanagement on their side?
I think there is plenty of room for RH to come out of this poorly even if the citadel story ends up being false and it was in fact a liquidity issue.
Allowing traders to only sell, and blocking buying is wrong. Who is allowed to buy at that point? Very few retail traders, but every major player who has an upside down stake still can. The price was then tamped down during the lock out so hedges and old money are able to minimize their loses. Anyone pretending this didn’t happen is delusional. RH enabled it.
RH lost a lot of their customers. Possibly millions of them by the time this is over.
To be fair though, it wasn’t just RH and GME either though. Multiple brokers locked out multiple symbols.
https://www.theverge.com/2021/1/28/22254863/etrade-gamestop-...