Reddit investors shake up Wall Street

By CNN Business staff

Updated 10:21 PM ET, Thu January 28, 2021
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12:37 p.m. ET, January 28, 2021

Ted Cruz and AOC agree on something: They aren't happy with Robinhood

From CNN Business' Alexis Benveniste

As the stock frenzy continues, trading app Robinhood is restricting transactions for certain securities including GameStop (GME), BlackBerry (BB) and AMC (AMC). Senator Ted Cruz and Representative Alexandria Ocasio-Cortez — two lawmakers from opposite ends of the political spectrum — aren't happy about it.

On Thursday, AOC, a progressive Democrat, tweeted: "This is unacceptable. We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit. As a member of the Financial Services Cmte, I’d support a hearing if necessary."

Cruz, a conservative Republican, retweeted Ocasio-Cortez with a surprisingly un-ironic "Fully agree."

3:59 p.m. ET, January 28, 2021

How does Robinhood make money? You might be surprised

From CNN Business' Julianne Pepitone

Robinhood is free for investors, touting itself as democratizing the world for young traders. So how does the app make money? In part through a controversial industry practice known as payment for order flow.

Here's how it works: Brokerage firms like Robinhood can cash in on where they send customers' trade orders. Broker-dealers – including market movers like high-frequency trading firms – pay Robinhood for executing the trades with them.

That works out well for Robinhood, whose CEO has previously defended the practice to CNN Business' Matt Egan. But it hasn't always been ideal for Robinhood's investors.

In 2019 the company was fined by a regulator for sending customer trading orders a few years prior to four broker-dealers without guaranteeing the best price.

Robinhood said at the time that the charges no longer reflected their current practices. But then again in December 2020, the company agreed to pay a $65 million fine to the SEC to settle similar charges -- that Robinhood failed "to satisfy its duty to seek the best reasonably available terms to execute customer orders," and didn't disclose that it received payments for order flow.

The SEC said Robinhood benefited from executing the trades that weren't ideal for its customers, and that investors lost out on $34.1 million (even after taking into account the savings from the commission-free trades).

11:43 a.m. ET, January 28, 2021

GameStop suddenly tumbles, falling as much as 67%

From CNN Business' David Goldman

GameStop (GME) was up as much as 39% Thursday before crashing as much as 67%.

The roller coaster was set in motion after Robinhood banned trades of the stock earlier this morning.

The last time GameStop fell was January 20, when it slipped less than 1%. In the 13 trading sessions since GameStop announced its new board, the stock has risen 500% and has fallen at the end of just 3 sessions.

11:38 a.m. ET, January 28, 2021

Robinhood is getting trashed on Google Play

From CNN Business' Jordan Valinsky

Some users aren't thrilled that Robinhood has restricted trading of several hot stocks, including GameStop (GME), BlackBerry (BB), Bed Bath & Beyond (BBBY) and Nokia (NOK).

The app's ratings has fallen to a 1 star on Google Play. Reviewers are criticizing Robinhood for the move and calling it "market manipulation." Another person wrote "Horrible app, no notion of a free market."

Robinhood is still maintaining its 4.8 out of 5 rating on Apple's App Store.

11:38 a.m. ET, January 28, 2021

This headphone maker's stock is even hotter than GameStop 

From CNN Business' Paul R. La Monica

Sure, GameStop's (GME) stock has surged this year. But investors in headphone maker Koss have a message for millennial GameStop traders — hold my coconut pineapple hard seltzer.

Koss (KOSS), a small Milwaukee-based firm, has soared 800% in 2021 — from just under $3.50 a share to about $47. Most of the stock's gains have taken place in the past week. GameStop, if you're keeping score, is up "just" a little more than 600% year-to-date.

Why is Koss doing so well? After all, the company reported a nearly 4% drop in sales in its most recent quarter due to weaker demand at big retailers,

It appears that Koss has also received positive mentions from Reddit's WallStreetBets members. The company, like GameStop, is a target of short-sellers — as hedge fund manager Will Meade pointed out on Twitter. Koss gets a fair amount of love from the headphones subreddit as well.

Koss was not immediately available for comment about the stock's surge. But CEO Michael Koss said in the company's October earnings report that things are going better for the company than the headline numbers would suggest.

"We experienced an increase in online direct-to-consumer sales driven by the continuation of people studying and working from home. Additionally, we saw a rebound in our export markets, especially in Europe, and in many of our US-based distributors," Koss said.

Still, the stock's huge move has some consequences. Koss was one of eight stocks — along with GameStop, AMC (AMC) and BlackBerry (BB) — that is now restricted by Robinhood. Koss shares were extremely volatile Thursday, swinging from big gains to a nearly 50% loss by midday.

11:10 a.m. ET, January 28, 2021

Mark Cuban on Reddit traders: It’s truly business as usual

From CNN's Alison Kosik

Billionaire Dallas Mavericks owner Mark Cuban told CNN that the frenzy happening around stocks like GameStop is “truly business as usual with the only change being small stock traders giving the business to the big short sellers.”

Cuban tweeted support for the Reddit group sending GameStop sky-high.

He also sent a warning to naysayers:

11:01 a.m. ET, January 28, 2021

Dow rallies 500 points

From CNN Business' Anneken Tappe

GameStop might be tumbling but the major stock indexes are soaring today.

The Dow is up some 500 points, or 1.6%, after just an hour and a half of trading.

The S&P 500, the broadest measure of the US stock market, is up 1.5%, and the Nasdaq Composite is up 1%.

Even the small-cap Russell 2000 index, which GameStop (GME) is a constituent of, is up 0.6% despite the fateful gaming retailer's shares dropping 24%.

10:45 a.m. ET, January 28, 2021

WallStreetBets founder on GameStop: There is no precedent for this

The man who founded WallStreetBets on Reddit says he could never have predicted the frenzy around stocks like GameStop. 

Speaking to Julia Chatterley on First Move, Jaime Rogozinski said:

This happened so quick, so fast. The turning point was when I saw yesterday that the White House was commenting on this story. I can’t imagine that I ever envisioned this happening."

Watch the full interview below.

10:22 a.m. ET, January 28, 2021

The latest GameStopped company: American Airlines

From CNN Business' Chris Isidore

The latest GameStopped company is American Airlines, the world's largest airline.

Thursday American was one of three US airlines - along with Southwest and JetBlue - report a record loss for 2020. American warned that its first-quarter loss will likely be worse than its fourth-quarter loss.

But shares soared pre-market following the report, at one point rising 87% before settling back down. Shares of American were up about 15% in early trading. Once again the rise appeared to be driven by posts on Reddit by some who hoped to drive up the price and put a squeeze on investors who bet against it by shorting it.

"AAL flying to moon?" wrote one investor. "Let's see if we are going to get some tasty juice out of a squeeze."

Those investors have recently driven up the price of shares of GameStop (GME), another troubled money losing company. According to S3 Partners, about 19% of American shares are controlled by shorts. No other US airline has as much as 5% of its shares held by shorts.

American CEO Doug Parker declined to comment on the stock move in his call with analysts and media Thursday: "As a rule, we don't speculate on the day-to-day movements of our share price. We'll stick to that rule today."