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No one before at Melvin Capital makes fun of this meme.

Despite announcing in May that it would shut down and return the money to investors, the hedge fund’s risk appetite and disclosures are being scrutinized by the Securities and Exchange Commission, according to sources who spoke to The Wall Street Journal. Melvin, you’ll recall, was one of the biggest victims of last year’s meme stock frenzy, and his name is back in the news just as the stocks that toppled Melvin surge. again.

Meme Some, Lose Some

A reminder on the phenomenon of meme stocks. A rabid community of retail investors on social media – on Reddit they call themselves “monkeys” – coordinated their stock purchases against the positions of large hedge funds and institutional firms. Famously, they focused on three stocks – AMC, GameStop and Bed Bath & Beyond – that these big companies bet against by selling them short. The monkeys sent their stock prices skyrocketing towards the Karman line, and companies like Melvin were caught off guard because their short positions meant they would only profit if stocks went down instead of up – and up and ascend.

That was enough to push Melvin to a loss of $6.8 billion in January 2021 – representing more than half of his assets under management. Despite a modest recovery, Melvin threw in the towel earlier this year, but that hasn’t stopped regulators from wanting to know more:

  • Melvin was successful in raising funds after its disastrous first month of January, although in May 2022 clients who had invested in Melvin to start 2021 were missing out on 57% of their money. Customers who invested after January 2021 made money, a source told WSJbut at lower returns than in previous years, leading CEO Gabriel Plotkin to say he wanted to “get out of managing outside capital.”
  • Melvin suffered more losses earlier this year during the tech rout, and the SEC is reportedly investigating what exactly the hedge fund told clients about the risks of its investment strategy.

Life is short : Perhaps instinctively, the Reddit monkeys have reinvested in their beloved meme stocks this week, driving Bed Bath & Beyond up 60% over the past five days, AMC up 49%, and Gamestop over 6%. Somewhere, somehow, a short seller is crying into his overpriced granola.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.