Retail GameStop was unable to sell its shares, which have surged by more than 183% over the past month amid pump by Reddit users due to regulatory restrictions. Reuters writes this with reference to persons familiar with the discussion of this issue within the company.
At the end of January, GameStop securities rose more than 400%. If on January 11, the company’s market capitalization was estimated at $ 1.4 billion, then by January 28, when the value of shares reached its peak, the market capitalization had grown to $ 33.7 billion. At the moment, the company’s securities are traded at $ 50, which is still almost twice higher than their cost at the beginning of last month.
As mentioned above, the growth in quotations is associated with the actions of Reddit users who bought shares in order to prevent hedge funds closing short positions. At the same time, there is an opinion that professional market players may be involved in the pump, and recently JPMorgan experts have found confirmation of this.
After analyzing public data from the stock exchange, the investment bank found that among retail investors in January, GameStop stock was only 15th in terms of purchases. Analysts believe that Wall Street traders were actively involved in trading, determined to capitalize on the sudden rally in securities. For example, the New York-based Senvest Management fund earned $ 700 million on GameStop securities.
At the moment when the value of GameStop shares reached its peak, the company could sell part of the shares to cover its debts. At the end of October, GameStop’s debt was estimated at $ 216 million. The company would also have enough money to transform the business into a digital game distribution service, but none of this was done.
Sources told Reuters that the company refused to sell its shares, despite the fact that Wall Street consultants strongly advised it to do so. GameStop can still sell the stock, but the lion’s share of the profits has already been lost. Now its market capitalization is estimated at $ 3.57 billion.
Note, GameStop considered the possibility of selling shares during the rally and there were certain opportunities for this. In December, the company registered an option to sell a $ 100 million package of securities with the US SEC, but it was never executed.
GameStop has decided that, under US law, it has no right to sell shares, as it has “material information” about the state of its business that is not available to other market participants. When selling shares, the SEC requires companies to disclose such information.
These are data related to the fourth quarter of the fiscal year, which ended in January. By the time of the pump, GameStop executives had already collected information for the report and had a complete picture of the state of the company’s business.
GameStop could sell the stock with a preliminary report. But such a move, taken to sell securities, comes with significant difficulties and regulatory risks that the company is reluctant to accept.
Note, that some pump participants continue to hold GameStop shares. One of them was Tron founder Justin Sun. In an interview with Bloomberg, he admitted that at the beginning of the month he formed a portfolio of stocks from assets promoted by Reddit users – two days later, Sun lost 70% of his investment on these investments. Despite the losses, he intends to continue to hold the position.
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