Epic battle over GameStop as 'nerds' take on Wall Street

New York - A group called WallStreetBets pushes up shares of GameStop, a struggling chain of video game retail stores

An epic battle is unfolding on Wall Street, with a cast of characters clashing over the fate of GameStop, a struggling chain of video game retail stores.

The conflict has sent GameStop on a stomach-churning ride with amateur investors taking on the financial establishment in the mindset of the Occupy Wall Street movement launched a decade ago.

GameStop, a well-known retail chain whose business model of selling games on discs appears to have been overtaken by a move to the Internet, has been the target of “short sellers,” often big hedge funds that bet on a decline by selling borrowed shares in the hope of repaying at a lower price.

But a group of amateur investors, organising via the online platform Reddit, has fought the trend. A group calling itself WallStreetBets, with some three million members who exchange tips and boast about beating “the system,” is credited with pushing up GameStop shares and roiling the Wall Street establishment.

Some analysts have described the situation as a “nerds vs Wall Street” battle.

Jaime Rogozinski, founder of WallStreetBets, said the movement “is able to do what Occupy Wall Street was never able to do but on a completely different angle”.

“Occupy Wall Street was fed up with this saying ‘it’s a game we can’t play, you’re forgetting the little guy.’ Now the little guy figured out a different way around it,” he said.

The WallStreetBets forum had restricted access to those outside its 3.6 million subscribers for a few hours on Wednesday evening, but was again visible to the public later.

The WallStreetBets followers have been on a GameStop buying spree, which not only pushes up the shares but puts pressure on short sellers to make purchases to “cover” their bets to avoid steeper losses.

This is known on Wall Street as a “short squeeze” and can result in a dizzying rally by forcing short sellers into becoming buyers.

As a result, GameStop surged 18 per cent on Monday, another 115 per cent on. Tuesday and had leapt 135 per cent on Wednesday. That followed a stunning 50 per cent jump on Friday.

Short sellers, while reviled by some market players, are nonetheless seen as playing an important role in the markets by providing liquidity and driving down overpriced shares.

But at least one GameStop short seller said he walked away from the stock after what he claimed was harassment and threats by an “angry mob”.

The extreme volatility has raised concerns about manipulation, which could lead to an investigation by stock market regulators, and has even drawn attention from the White House.

“Our economic team including (Treasury) Secretary (Janet) Yellen and others are monitoring the situation,” said White House spokeswoman Jen Psaki.

“It’s a good reminder, though, that the stock market isn’t the only measure of the health of our economy.”

Late on Wednesday, the Securities and Exchange Commission said it was monitoring the activity.