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Melvin Capital Says It Was Short GameStop Since 2014

Melvin Capital Management had been betting against GameStop Corp. since 2014 and still believes online videogame downloads will overtake the retailer’s business model, the hedge fund’s founder said in an advance copy of his congressional testimony made public Wednesday.

Gabe Plotkin’s Melvin Capital lost more than 50% on its investments in January as losses piled up from its short bets against GameStop and other companies. GameStop had been touted on the Reddit forum WallStreetBets and some other social-media platforms, with its surging stock prices damaging the returns of several high-profile firms including Steven A. Cohen’s Point72 Asset Management and Daniel Sundheim’s D1 Capital Partners.

The action in GameStop was fueled partly by an army of bullish individual traders urging one another on platforms like Reddit to buy shares and options and squeeze Melvin, a particular target of posters. GameStop’s seemingly relentless march upward also created what traders described as a sort of contagion effect. Managers lost confidence in their short positions and covered those bets while also trimming their stakes in other companies to reduce risk in their portfolio.

GameStop’s seemingly relentless march upward also created what traders described as a sort of contagion effect, with managers losing confidence in their short positions and covering those bets. These managers also trimmed their stakes in other companies to reduce risk in their portfolios.

The episode has generated questions about the market’s integrity and set off federal probes into possible market manipulation. Prosecutors have subpoenaed information from brokers such as Robinhood Markets Inc., the popular online brokerage that many individual investors used to trade GameStop and other shares.

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