Friday, February 19, 2021
Tech

$2 billion from Citadel was just them buying low

$2 billion from Citadel was just them buying low
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  • Melvin Capital got $2.75 billion from Citadel and Point72 at the end of January when the firm’s GameStop shorts caused the fund to lose billions.
  • Robinhood raised $3.4 billion at the end of January from investors after it briefly could not meet liquidity requirements from a clearing house. 
  • Both firms are adamant the billions they raised were not bailouts or necessary to survive in the moment.
  • Visit the Business section of Insider for more stories.

Melvin Capital founder Gabe Plotkin was humbled by the GameStop-fueled trading frenzy that caused his firm to fall 53% in a single month. 

But he wasn’t bailed out by Citadel founder Ken Griffin’s $2 billion investment into his firm or his former boss Steve Cohen’s $750 million, contrary to what financial media — including Insider — have written for weeks since Melvin’s struggles became the biggest story in the markets. 

“Melvin Capital was not ‘bailed out’ in the midst of these events. Citadel proactively reached out to become a new
investor, similar to the investments others make in our fund,” Plotkin said in his opening statement.

“It was an opportunity for Citadel to ‘buy low’ and earn returns for its investors if and when our fund’s value went up. To be sure, Melvin was managing through a difficult time, but we always had margin excess and we were not seeking a cash infusion.”

In a statement announcing the investment in January, Griffin said “Gabe Plotkin and team have delivered exceptional results over the history of Melvin. We have great confidence in Gabe and his team.”

Robinhood — the no-fee trading app many Wall Street Bets retail investors used — was also adamant during Thursday’s hearing with the House of Representatives Committee of Financial Services that the company did not need the $3.4 billion it raised at the end of January to get through the GameStop frenzy, despite CEO and cofounder Vlad Tenev telling Ohio Rep. Anthony Gonzalez the company did not have the $3 billion in liquidity originally being asked of it early in the morning of Jan. 28. 

This requirement from its clearing house was eventually lowered, and Robinhood was able to meet it, Tenev said, but the $3.4 billion — which was raised from former investors such as Ribbit Capital — was cushion for the next “Black Swan” event. 

“This was a five sigma event,” Tenev said, referring to the unlikelihood of the market volatility caused by this trading. Tenev said the likeliness of this happening was one in more-than-three-million.

Gonzalez, the Ohio Republican who asked about the liquidity requirements, was still unmoved, telling Tenev that “there was a vulnerability was clearly shown in your business model.” 

Despite this, the commission-free trading offered by Robinhood has on the whole helped retail investors, according to Jennifer Schulp, a witness at Thursday’s hearing and the director of financial regulation studies at the Cato Institute. 

“It has largely been good for customers,” she testified. 



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