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Why GameStop Is Falling Today

By Rich Duprey – Sep 30, 2021 at 11:40AM

Key Points

  • GameStop was the original target of the meme stock investing craze.
  • A lawsuit against Robinhood seems to reveal there may have been more going on behind the scenes.
  • There's still no smoking gun, and it also doesn't change the murky fundamentals of a business in transition.

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The video game retailer remains caught between the small investor and the big-money interests.

What happened

Shares of GameStop (GME -2.61%) are down 3.5% in morning trading Thursday on no news specific to the video game retailer, even though a lawsuit against Robinhood Markets (HOOD -1.12%) and various market makers like Citadel Securities has suggested big-money interests conspired to keep its share price down.

So what

Despite vociferous denials the Robinhood brokerage colluded with anyone, including Citadel, its biggest customer, to limit trading in GameStop shares earlier this year during the meme stock trading frenzy that saw short-sellers losing tens of billions of dollars, internal chat messages revealed in a lawsuit against the brokerage by investors have at least given the impression of impropriety.

Man playing video game in a store

Image source: Getty Images.

For example, Robinhood's brokerage president Jim Swartwout reportedly informed colleagues he had sold all his personal holdings in AMC Entertainment (AMC -3.31%) immediately before he moved to implement a "position closing only" directive in GameStop stock, meaning retail investors couldn't buy any more shares, only sell them. Trading in AMC stock was also limited.

Now what

Small investors have long suspected moneyed interests have undermined their ability to profit at scale or at the expense of hedge funds. The revelations coming out of the lawsuit at least superficially seem to back up their allegations, though a smoking gun has yet to be revealed.

Meme stocks like GameStop are going to be volatile because they trade more on what's said in internet chat rooms than on the fundamentals of their businesses. While GameStop is trying to turn itself around, long-term investors at least will need more proof it can work before they take a position in the video game stock.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

GameStop Stock Quote
$22.78 (-2.61%) $0.61
AMC Entertainment Stock Quote
AMC Entertainment
$6.53 (-3.31%) $0.22
Robinhood Markets Stock Quote
Robinhood Markets
$9.29 (-1.12%) $0.10

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