The Enduring Lessons of ‘Dumb Money’
Class warfare makes for a juicy Hollywood tale, but almost three years after the GameStop trading drama, hedge fund titans still rule.
When retail investors on a subreddit known as WallStreetBets decided to take on the titans of finance at their own game by buying up shares of GameStop and pushing the stock to the moon in January 2021, the financial order was upended — if only for a moment.
Now, the movie that tells the tale, “Dumb Money,’’ — whose title is based on the pejorative term for retail investors — has finally hit the big screen, opening in several cities last weekend. The Hollywood version of events, however, glosses over inconvenient facts in its effort to bolster the class revenge story, whose heroes include a young investor with the improbable avatar of “Roaring Kitty,” as well as a nurse, a GameStop mall store employee, and two University of Texas students.
The setup comes early on as Keith Gill, aka Roaring Kitty and played by Paul Dano, insists that “Wall Street can get it wrong,” which he reminds the audience was proved by the crash of 2008, as he makes his pitch for GameStop. The financial crisis hovers in the background here; it’s one reason the protagonists can’t get high-paying jobs or are mired in student debt, resorting to gambling on stocks via the Robinhood trading app as their only hope for financial freedom. At one point, the CEO of Robinhood Markets, Vlad Tenev (played by Sebastian Stan), even tries to defend his firm by saying it “came out” of the Occupy Wall Street movement. After all, the Robinhood app offers commission-free stock trading, enabling the hoi polloi to buy and sell equities, options (and even crypto) simply by pressing a button on their smartphones.
The Redditors began targeting Melvin Capital in the fall of 2020 once they realized the hedge fund was short GameStop. It wasn’t a secret — Melvin had disclosed its listed GameStop put options in filings with the Securities and Exchange Commission as far back as 2014. As Melvin founder Gabe Plotkin (Seth Rogen) explains in the film, he viewed GameStop as a Blockbuster in waiting, meaning it would eventually go bankrupt. That fate seemed quite possible, as the closure of GameStop’s brick-and-mortar stores during the pandemic helped drag the stock down below $2 per share by the summer of 2020. Many short sellers agreed, and by January 2021, short sales accounted for more than 100 percent of the outstanding float.
With such heavy short interest, GameStop was the perfect short squeeze candidate. If retail investors had never heard of that technique — which forces short sellers to buy stock to cover their borrowed shares, pushing the price even higher — the movie makes clear they would soon be among its most fervent practitioners, out for blood from the hedge fund tycoons they felt only wanted to destroy GameStop. But squeezing shorts wasn’t the only lesson about Wall Street the “dumb money” crowd would learn. The other was “payment for order flow,” the process by which Citadel Securities, a market maker, bought order flow of retail investors from Robinhood and gained critical market intelligence in doing so.
The GameStop saga was also a lesson in the power of social media. Starting with almost nothing — and in some cases, negative net worth — many of these retail investors managed to make real money, for a time at least, by sticking together and refusing to sell their shares. As the movie demonstrates, after the thinly capitalized Robinhood was forced by the Depository Trust & Clearing Corp. to stop processing buy orders, the stock plummeted, infuriating GameStop’s investors. Led by Gill, they dove back in once they were able to buy again.
Of course, the bad guys in the movie are Plotkin and the hedge fund honchos who bailed out Melvin — Citadel’s Ken Griffin (Nick Offerman) and Point72 Capital’s Steve Cohen (Vincent D’Onofrio) as well as Robinhood’s Tenev. (“Fucking criminal bastards” is one way the Reddit crowd describes them.)
Plotkin, whose firm was bleeding billions, comes off as shell-shocked and clueless — he was planning to sit in front of his wine collection while giving his remote testimony for a House Financial Services Committee hearing until his PR advisers convinced him it was a bad idea. Meanwhile, Cohen’s lines in the film are mostly profanity-laced attacks on Griffin, whom he calls an “asshole” more than once. Tenev is seen trying to distract the media by giving a reporter a scoop about its upcoming IPO while the steely-faced Citadel founder, first seen having lunch at the Four Seasons, is mostly taciturn. (Plotkin declined to comment. Representatives for Cohen and Tenev did not return requests for comment.)
Griffin, however, has had a lot to say. Before the movie’s release, his lawyers wrote to Sony Pictures, the film’s distributor, to complain about the way he and Citadel Securities were represented, according to the daily newsletter Puck.
“Griffin claims the movie ‘crosses the line into the knowingly false and defamatory portrayal of Ken and Citadel Securities,’” according to a letter sent to Sony by well-known defamation attorney Tom Clare, along with Quinn Emanuel partner Bill Burck, Puck wrote.
In an email to Institutional Investor, Clare said “the original script contained numerous fabrications, and Citadel felt an obligation to flag those to Sony. Thanks to our letter, Sony corrected them and the final film did not include a number of falsehoods that would have been blatantly misleading to the audience.”
Sony has denied making changes at the behest of Citadel. But one line stands out. In the trailer to the movie, Griffin tells Plotkin that “retail traders always lose.” According to Puck, Griffin’s letter said he would never make such a statement. Griffin claims his business of buying retail order flow actually helps those investors as it has made stock trading more accessible. In the movie’s final cut, the quote in question is attributed to Plotkin.
Even so, Clare told II that “it’s a shame the final version still chose to sensationalize events through false implications and inaccuracies.” He declined to say what those are, but the film does offer a disclaimer: It’s a dramatization, not a documentary. While the story is based on real events and people, the movie acknowledges that some things may have been changed in the telling.
Griffin, through Citadel Securities and his hedge fund firm, Citadel LLC, has a dual role in the drama. First, as GameStop shares were peaking in late January, Citadel and Point72 jointly invested $2.75 billion in Melvin, which was down almost $7 billon — more than half of its AUM — at the time.
“I think Gabe Plotkin is one of the finest investors of his generation,” Griffin told CNBC at the time.
The Citadel-Point72 investment kept Melvin afloat and contagion in the stock market mostly at bay — for a time at least. But eventually both Citadel and Point72, which had already been an early investor in Melvin, pulled their emergency capital. (Melvin ended 2021 down 39 percent, and Plotkin shuttered the fund last summer.)
But long after the January events were over, GameStop investors remained obsessed with Citadel Securities. In an investor lawsuit, they alleged Citadel Securities was involved in Robinhood’s decision to halt purchases to protect the market maker, which had taken the other side of those trades and therefore had big short positions that were underwater.
Griffin has consistently denied having anything to do with Robinhood’s decisions, and his testimony before the House committee to that effect appears in the film.
There is no evidence that Griffin was not telling the truth. Messages between execs at the two firms show they were in contact during the trading frenzy, but the content of those conversations has not been revealed. The lawsuit was dismissed, and a report by the SEC concluded that broker-dealers including Robinhood restricted trading because they received margin calls from clearinghouses. The SEC made no mention of any role played by Citadel Securities.
The practice of payment for order flow was likewise scrutinized by the SEC. The agency briefly considered banning the practice, which critics argue creates conflicts of interests, but in the end did not do so. Nor did the House probe lead to any changes in Wall Street laws, regulations or practices.
Meanwhile, the Wall Street players in the saga have come out on top. The hedge funds run by Cohen and Griffin had stellar returns in 2021, putting both men on Institutional Investor’s Rich List for the year. (Griffin made $2.5 billion and Cohen $1.4 billion.) Then last year, Griffin emerged at the top of the Rich List, earning a record $4.1 billion.
Even after shutting down his hedge fund, Plotkin is reportedly still worth $400 million. Earlier this year, he and PE executive Rick Schnall bought a majority stake in the NBA’s Charlotte Hornets.
Short sellers have also come back. During the frenzy, short selling’s demise was often predicted, and several practitioners believe that the high-profile investigation into short sellers by both the SEC and the Justice Department that began in early 2021 was triggered by the public animosity ginned up in the GameStop drama. So far, that investigation has not led to charges against anyone.
“It’s ironic that after January 2021, it was a great time for short selling,” says short seller Carson Block, CEO of Muddy Waters Capital. In addition to GameStop, other so-called meme stocks started to sink, and by mid-February the SPAC stocks that short sellers also targeted began their steep decline. By the end of 2021, tech and other growth stocks were also falling.
The fate of retail investors is not so clear. According to the movie, Gill ended up making $34 million, while three of the others also ended up in the black. Only one lost money. But any investors who bought near the peak of the frenzy, or continued to buy the stock and held on, would have fared far worse. GameStop shares now trade under $18, down around 85 percent from their peak in late January 2021. Robinhood shares have also tumbled since their peak, as trading volumes have declined.
“It’s a shame because it was a get-rich-quick scheme where uninformed people thought they could make money by going against the establishment,” says Marc Cohodes, a short seller who for a time joined with retail investors betting on AMC Entertainment, another meme stock that has since collapsed. “The establishment always wins because the establishment sets the rules.”
“Dumb Money’s” parting missive is that “Wall Street will never be able to ignore retail again.” But the power of the little guys, while dramatic, was fleeting. Nearly three years on, this final sentiment seems mere wishful thinking from Tinseltown, the land of dreams.