Among other findings, the SEC said hedge funds weren’t broadly damaged by January’s unprecedented trading event.
SEC Publishes Findings
The Securities and Exchange Commission released a long-awaited, 44-page report on Monday detailing its findings regarding this year’s “Memestock Frenzy,” which involved companies such as GameStop and AMC.
During the frenzy in late January, the share prices of those companies soared exponentially. According to one of the key narratives of the situation, smaller investors piled onto GameStop as a way to directly attack hedge funds that were actively betting against GameStop’s success and future. As CNBC reported at the time, those “hedge funds and other players had to rush in to cover their bets against the stock.”
What followed were reports that hedge funds had lost billions of dollars all at once. In fact, one notable hedge fund, Melvin Capital, received what many described as a nearly $3 billion bailout. Meanwhile, in June, it was reported that the London-based White Square Capital had shut down its main fund due to the losses it suffered in January.
However, now, the SEC has said there is no real evidence to support some of the key pillars of this narrative, including that hedge funds were substantially hurt in the long run.
“Staff believes that hedge funds broadly were not significantly affected by investments in GME and other meme stocks,” the agency said in its report. “Staff did not observe that any advisers to private funds and registered funds experienced liquidity issues or difficulties with counterparties.”
On the whole, hedge funds even saw a 1.2% increase in profits in January, according to data from the HFRI Fund Weighted Composite index.
The agency also noted that GameStop purchases to cover bets were just “a small fraction of overall buy volume,” adding that “GME share prices continued to be high after the direct effects of covering short positions would have waned.”
“The underlying motivation of such buy volume cannot be determined,” the agency concluded. “Perhaps it was motivated by the desire to maintain a short squeeze. Whether driven by [that] desire… or by belief in the fundamentals of GameStop, it was the positive sentiment, not the buying-to-cover, that sustained the weeks-long price appreciation of GameStop stock.”
SEC Not Currently Issuing Any Recommendation
The agency did not offer any policy recommendations with this report, though it did stress that a number of small-time investors who either initially bet against GameStop’s success or tried to ride the wave of gains saw significant losses.
Given that the number of investors trading GameStop rapidly jumped from 10,000 at the beginning of January to 900,000 by the end of the month, it’s not surprising that the FTC confirmed heavy losses for many.
With that in mind, the SEC aligned its next focus on commission-free trading apps and the way in which they promote potentially excessive trading. Notably, that includes apps such as Robinhood and Webull, both of which faced controversy during the frenzy for severely restricting users’ ability to trade so-called memestocks.
“Consideration should be given to whether game-like features and celebratory animations that are likely intended to create positive feedback from trading lead investors to trade more than they would otherwise,” the SEC said in its report.
SEC Chair Gary Gensler said Tuesday that by April, the agency could propose rules limiting how those apps make money from each trade, which is known as “payment for order flow.”
See what others are saying: (The LA Times) (The Washington Post) (The Wall Street Journal)
Workers in Alabama Will Rehold Vote to Unionize After Amazon Interfered With First Election, Agency Finds
Among other actions, federal officials found that Amazon improperly placed an unmarked U.S. Postal Service mailbox in front of its warehouse.
Workers Will Redo Union Vote
Workers at an Amazon warehouse in Bessemer, Alabama, will revote on whether or not to unionize thanks to a ruling issued Monday by the National Labor Relations Board (NLRB).
The workers previously agreed not to unionize by a vote of 1,798 to 738 in April. Had they voted yes, the group would have set a precedent by becoming the first Amazon employees in the country to be represented by a union.
Following the initial vote, the Retail, Wholesale, and Department Store Union — which led the charge for employees to organize — filed unfair labor practices charges with the NLRB, an independent federal agency. There, it alleged that Amazon at times broke the law while campaigning against the effort.
In its Monday decision, the NLRB’s Atlanta regional director Lisa Henderson agreed, saying Amazon, “essentially highjacked the process and gave a strong impression that it controlled the process.”
She additionally noted that Amazon “improperly polled employees when it presented small groups of employees with the open and observable choice to pick up or not pick up ‘Vote No’ paraphernalia in front of” managers.
Amazon Challenges NLRB Ruling
Amazon is expected to appeal Henderson’s decision.
“It’s disappointing that the NLRB has now decided that those votes shouldn’t count. As a company, we don’t think unions are the best answer for our employees,” spokesperson Kelly Nantel said according to NPR.
In a statement, Nantel also cited the fact that the results of the first vote were overwhelming.
Convincing employees to flip the results will likely be an uphill battle. To do so, those in favor of unionizing will need to convince hundreds to vote differently or convince thousands of workers who sat out the last round to now vote.
Still, this is a second breath of life for pro-unionists. While some believe the outcome could change given high employee turnover rates at Amazon, many others expect it to hold firm as a “no” vote.
See what others are saying: (NPR) (WVTM) (The Washington Post)
CVS, Walgreens, and Walmart Helped Fuel the Opioid Crisis, Jury Finds
While all three chains have vowed to appeal, this ruling is a massive win for plaintiffs who argued that opioid manufacturers and retailers violated “public nuisance” laws when contributing to the opioid epidemic.
Jury Sides Against Retailers
A federal jury in Cleveland agreed Tuesday that CVS Health, Walgreens, and Walmart — three of the country’s biggest pharmacy chains — are responsible for contributing to the opioid crisis in two Ohio counties.
This is the first time that the retail arm of the drug industry has been held accountable for opioid overdoses and deaths. It’s also the first time a jury has been used to decide in a major opioid lawsuit.
Previously, only manufacturers such as Purdue Pharma and Johnson & Johnson faced settlements or penalties, though the latter narrowly escaped $465 million in opioid fines in Oklahoma earlier this month after the state’s Supreme Court overturned a lower court ruling.
Many plaintiffs in thousands of similar lawsuits all across the country are seeing the Ohio jury’s decision as an optimistic sign — especially since most of them are using the same argument. Plaintiffs in Ohio alleged that either opioid manufacturers or retailers violated “public nuisance” laws by ignoring harm caused by opioid abuse that later snowballed into a full-fledged public health crisis.
Retailers Vow to Appeal
Unsurprisingly, all three chains have promised to appeal Tuesday’s verdict.
There is precedent to think this decision could be overturned. For example, the now-overturned J&J lawsuit first successfully used the public nuisance argument in lower courts, but during an appeal, the Oklahoma Supreme Court thought the plaintiff’s argument was too broad.
That said, every state has different public nuisance laws, so there may not be a clear-cut answer as to what actually could happen with all these cases.
Despite a pending appeal, the judge overseeing Tuesday’s Ohio verdict will make a determination on how much these companies must pay after additional hearings in the spring.
While the retail arm has largely avoided settling up to this point, if this case ultimately does not go their way, it could open the door for future settlements if they decide that route is less costly than going to trial.
See what others are saying: (The New York Times) (Associated Press) (The Wall Street Journal)
Biden Authorizes Release of 50 Million Barrels of Oil From U.S. Reserve To Ease Gas Prices
Experts believe the release will, at best, provide temporary relief to extremely high gas prices but only if other countries tap into a significant amount of oil from their reserves as well.
Biden Taps Into Oil Reserves
President Joe Biden authorized the release of 50 million barrels of oil from the U.S. Strategic Petroleum Reserve on Tuesday in an attempt to bring down staggeringly high gas prices.
“American consumers are feeling the impact of elevated gas prices at the pump and in their home heating bills, and American businesses are, too, because oil supply has not kept up with demand as the global economy emerges from the pandemic,” a White House announcement reads. “That’s why President Biden is using every tool available to him to work to lower prices and address the lack of supply.”
As of Tuesday morning, the national average of gas sat at $3.40, according to the American Automobile Association (AAA). While down slightly over the last few days, the national average for November remains the highest it’s been since 2013.
Despite the announcement, Americans shouldn’t expect to see an immediate drop in gas costs. In fact, gas prices are unlikely to be impacted much in the coming weeks since the government’s reserve only stores crude oil, which will need time to be refined into gasoline.
Many analysts expect gas from the reserves to start reaching consumers’ pumps around mid-December, but even then, it will likely be used up in around a week. Last year, the U.S. used about 8 million barrels of gas from the reserve a day.
Those two factors are likely major contributors to why this news didn’t do much to calm the oil market. Following the announcement Tuesday, the benchmark oil price in the U.S. — measured by West Texas Intermediate crude futures — actually rose.
Last week, Biden asked the Federal Trade Commission to look into “mounting evidence of anti-consumer behavior by oil and gas companies” amid rising gas prices.
Price Concerns Persist
In its announcement, the White House said the U.S. release is being taken “in parallel with other major energy consuming nations, including China, India, Japan, Republic of Korea, and the United Kingdom.”
A number of analysts cited by various news publications have predicted that this kind of multi-country release is the only chance the U.S. actually has of meaningfully impacting gas prices.
“The bottom line for motorists is this moves the needle — but barely, and maybe not for a very long period of time,” Patrick De Haan, an industry expert at Gas Buddy, explained to The Washington Post. “It’s certainly something, but how much that something is will be contingent on how much the other countries put in.”
It is currently unclear how much oil the other countries plan to release, though Indian officials have said the country will release 5 million barrels from its reserve.
Efforts could also go south in the long-term if the Organization of the Petroleum Exporting Countries (OPEC) pushes back. It previously warned of a possible response if Biden decided to make this type of release, with the organization arguing that the U.S. has no real justification for needing to tap into its reserve.
“There’s a threat this could lead to a risk of prices being elevated for longer if OPEC holds back meaningful production increases as a result,” De Haan told The Post.
Overall, the release of oil is a tricky situation for Biden. He was already facing stacking criticism from Republicans for recent inflation and supply chain bottlenecks. Even now, many have said the release of 50 million barrels isn’t good enough on its own.
On the other side, Democrats like Senate Majority Leader Chuck Schumer (N.Y.) have argued that tapping into the reserve could provide temporary relief.