By Pam Martens and Russ Martens: January 29, 2021 ~

According to JPMorgan Chase’s 13F filings with the Securities and Exchange Commission, it moved from a net short position in GameStop shares as of December 31, 2019 to a big long position as of September 30, 2020, the date of its last 13F filing. As of the end of the third quarter of last year, JPMorgan Chase was long (owned) 368,196 shares of GameStop versus a put (short position) on a meager 19,300 shares.

At the close of trading on September 30, 2020, GameStop was a $10.20 stock, making JPMorgan’s long position worth $3.8 million. At the intraday high yesterday, GameStop was a $483 stock. If JPMorgan had sold at the top, it would have made approximately $174 million on its long position versus where it was trading four months earlier.

We’re dismissing what happened to the put that JPMorgan held on 19,300 shares of GameStop for this reason: JPMorgan Chase just happens to be one of Melvin Capital’s Prime Brokers, the hedge fund making news because it was bleeding badly from its short position in GameStop. Melvin Capital’s other Prime Brokers include Goldman Sachs, Morgan Stanley and National Financial Services, according to Melvin Capital’s Form ADV filing with the SEC.  A Prime Broker typically provides hedge funds with one or more of the following services: trade financing, securities lending so hedge funds can take short positions, trade executions, and serving as custodian of securities.

JPMorgan is not just the Prime Broker to Melvin Capital. It services a large number of other hedge funds. That gives JPMorgan the ability to see which way trades are moving. One can assume that when JPMorgan saw its hedge fund clients closing out their short positions on GameStop in a panic, it exited its own put position before yesterday. It may have even purchased more shares of GameStop as it saw the runup in the share price occurring and had an insider’s view of exactly how short its own hedge fund customers were and how much more stock they had to buy to fully close out their positions.

The mainstream media narrative is that a bunch of amateur traders on a Reddit message board, r/WallStreetBets, wanted to take down evil hedge funds, like Melvin Capital, that were shorting the stock of GameStop (making bets it would decline in price) so these egalitarian activists set out to pump up the stock price.

There are a lot of problems with this narrative. For starters, the trading platform that a lot of the traders at WallStreetBets uses is called Robinhood, a private company whose investors include private equity firms and – wait for it – hedge funds. Robinhood provides commission-free trading to the WallStreetBets’ crowd but then sells those trades to – wait for it – hedge funds. So just as JPMorgan gains market advantage by seeing what its hedge fund customers are doing, these hedge funds gain market advantage by seeing what Robinhood’s customers are doing.

It’s not a big leap to question if hedge funds might have invented Robinhood in order to trade against the dumb money.

There is also a problem with the mainstream narrative based on the comments at Reddit’s WallStreetBets, which we perused this past week. While some comments clearly suggest a rookie’s knowledge of trading strategies, other comments are highly sophisticated, suggesting people who have studied for the Series 7 exam and hold trading licenses.

And as we reported yesterday, the typical suspects on Wall Street – JPMorgan Chase, Goldman Sachs, Morgan Stanley and others – have been trading tens of thousands of shares of GameStop in their own Dark Pools – quasi stock exchanges that the SEC allows these firms to operate in the dark inside the bowels of their firms. In the case of JPMorgan, it has two Dark Pools, JPM-X and JPB-X, that are both trading the shares of GameStop, raising the question as to whether it’s making a two-sided market in the stock — a situation ripe for manipulation.

Then there is the old maxim that to figure out a crime scene, you look for who benefits. There were comments all over Reddit’s WallStreetBets yesterday telling others not to sell GameStop – despite the fact that the stock was up intraday as much as 82 percent at one point from its open price and up over 900 percent from its share price of three months ago. Selling pressure from the young rebels could have disadvantaged big players on Wall Street who had not yet sold their full position.

Senator Sherrod Brown, who is the incoming new Chair of the Senate Banking Committee, Tweeted yesterday that he plans to hold hearings on “the current state of the stock market.”

Senator Brown needs to put on his Ferdinand Pecora hat for these hearings. Pecora was the outside counsel who led the Senate Banking hearings into the corrupt structure of Wall Street following the crash of 1929. Pecora oversaw an in-depth investigation that spanned years and put the Wall Street titans under oath, subpoenaed documents that included kickbacks to members of Congress and the media, and revealed how Wall Street’s “pools” of that era had rigged the market. The U.S. Senate conducted no such in-depth hearings on the actual structure of Wall Street after the 2008 crash.

Since 2014, JPMorgan Chase, the largest bank in the U.S., has racked up an unprecedented five felony counts, to which it admitted guilt, while its Board has taken no action to remove its Chairman and CEO, Jamie Dimon. Instead, the Board jacked up Dimon’s annual compensation to $31.5 million – strongly suggesting that Senator Bernie Sanders is exactly right, the business model of Wall Street is fraud.

Adding further to the loss of Wall Street’s reputation, Goldman Sachs and its Malaysian subsidiary were hit with two felony counts on October 22, to which they admitted guilt, and its stock closed up $2.49 cents on the day. The Justice Department charged Goldman with “a scheme to pay over $1 billion in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business for Goldman Sachs.” The scandal became known as the 1MDB affair, named after the Malaysian sovereign wealth fund that was looted.

For a more revealing look at the ongoing crime spree of the Wall Street banks that were bailed out by the Fed and the taxpayer in 2008, we highly recommend the rap sheets compiled by Better Markets.

The Editor of Wall Street On Parade, Pam Martens, worked on Wall Street for two decades and has read every page of the transcripts of the Pecora Senate Banking Hearings. That was the most corrupt era in the history of Wall Street at that point – but it looks like a cakewalk compared to what is happening today.

If the genuine egalitarian rebels at Reddit’s WallStreetBets succeed in getting meaningful Senate Banking hearings into an industry that is looting the American people with impunity, they will have, indeed, performed a vital public service for their country.