In a letter to investors, David Einhorn, the president of US-based fund management company Greenlight Capital, has accused Tesla chief Elon Musk and venture capitalist Chamath Palihapitiya of fueling the GameStop trading frenzy in January that prompted a hearing in US Congress.
The shares of GameStop, a US-based video game company, had shot up by 2000 percent as a consequence of Reddit day traders staging a buying spree.
Here's what happened
GameStop, a brick-and-mortar retail firm, was on the verge of going out of business due to the emergence of e-commerce and the closing of stores following the Covid-19 pandemic. Thus, several short-sellers and hedge funds betted against the GameStop stock. Essentially, these traders hoped for the GameStop stock price to decrease in order to make a profit. To sabotage the bet of these short-sellers, Reddit day-traders bought thousands of shares of GameStop. This sky-rocketed the shares of the video game company.
Here's what Einhorn alleges
Einhorn, in his letter, claims that the Federal Reserve System (Fed) oversaw the wrongs of Elon Musk who 'manipulated Tesla stocks in 2018'. He added that Musk and Palihapitiya encouraged the buying spree of Reddit users which overinflated the stock price of GameStop in January 2021.
In an indirect reference, Einhorn suggested that the Fed is more concerned about the stock prices and corporate profits than the economy itself.
Meanwhile, Einhorn has also backed American financial analyst Keith Gill's decision of exercising the call option on GameStop stocks available with him.
Notably, the letter comes in the wake of Gill, who also runs a YouTube channel in the name of Roaring Kitty, securing 50,000 more shares of GameStop at a strike price of $12.
Earlier this year, Gill had purchased 500 call options — with an expiration date of April 16 — for Gamestop stock. Gill had the choice to sell these options for a profit or increase his total holdings of the stock. He went with the latter.
According to a CNBC report, Gill — who is known as DeepF---Value on Reddit - relinquished millions of dollars in quick profit to ramp up his stake.
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