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Until now, one of the biggest security concerns of hedge fund magnates has been cyberattacks, which is why financial firms have always been early adopters of leading cybersecurity technology. Instances of physical attacks were few and far between. The main battle was waged against invisible cybercriminals until recently, when personal threats against hedge fund leaders began to rise. The targets have been narrowed down to a specific group that practices the art and science of short selling.
Short sellers are investors who sell stocks at high prices with the intent to buy them later at low prices. Their strategy is to anticipate a short-term price drop of a stock and then cash in on it. The practice has always been controversial, but today its critics are growing louder, stronger, and more threatening.
Thus, financial firms are now asking clients about their positions, something not typically done in the past. At the same time, short sellers realize their level of risk has increased and are seeking alternate strategies.
Threats Against Short Sellers Spurred by the GameStop Fiasco
In January, a group of investors on WallStreetBets, a Reddit forum, learned that several hedge funds predicted that the stock of US-based video game retailer GameStop Corp, would decrease in value. As such, the hedge funds positioned themselves to sell the stock and then buy it back at a lower price after the drop.
Reddit investors, however, had other plans. In an effort to thwart the hedge funds, they drove up GameStop’s share price by 1500%. In just one month, the company’s stock soared from $17 to $483. Hedge funds decided to cut their losses and sell, losing billions in the process. Hedge fund magnates are not likely to forget this hard-learned lesson. Adding insult to injury are the threats that followed.
Melvin Capital Management, one of the hedge funds that wanted to short sell, lost out its short position, losing billions. Even though the firm posted a huge loss, founder Gabe Plotkin found himself the victim of anti-Semitic hate speech and hired extra security. Hedge fund billionaire Steve Cohen’s company, Point72, also lost billions in the GameStop Corp surge and canceled his Twitter account after receiving personal threats. Andrew Left, founder of Citron Research, a company that posts research supporting short bets, announced that Citron will stop publishing this type of research after he received threats to himself and his family.
When Investing Gets Personal
Why are hedge fund magnates suddenly prime targets for threats? Nothing in their actions have changed, but investing has changed, becoming less about a company’s stocks and more about what that company represents. Hedge fund bigwigs represent the establishment to a younger generation of right wing, anti-institutional investors, many of whom would like to see the establishment fail. Therefore, these magnates have become easy targets.
Ramping Up Investor Security
While the GameStop play will not prevent investors from attempting to short sell in the future, it has made them trade more carefully and look for alternative strategies.
This has also been a wake-up call to ramp up security. In the digital age, when so many threats take place online, it is hard to differentiate between those who simply write a nasty comment and move on and those poised to perpetrate a crime. To combat this challenge, investors associated with the establishment need to address these security concerns and take proper precautions.
For additional resources and guidance, the Interfor team is here to help.