Meme stocks sank Melvin Capital. Now it's reportedly being investigated by the SEC over its risk management practices.
meme stocks sank melvin capital. now it's reportedly being investigated

Meme stocks sank Melvin Capital. Now it’s reportedly being investigated by the SEC over its risk management practices.

Gary Gensler SEC Chair Securities and Exchange CommissionSEC Chairman Gary Gensler.

  • The SEC has obtained information from Melvin Capital regarding its communication with investors, the Wall Street Journal reported.
  • The regulator has also contacted investors about what Melvin’s founder and other top executives said during last year’s meme-stock rally.
  • The investigation is in early stages, per the report, and may not lead to any formal claims of wrongdoing.

The US Securities and Exchange Commission has obtained information from Melvin Capital regarding its general communication with investors, the Wall Street Journal reported Thursday.

The regulator has also contacted investors about what Melvin’s founder and other top executives said during last year’s meme-stock rally, sources told the Journal.

Per the report, the SEC is looking into what the firm disclosed about the risks of its investment strategy to its clients.

The probe is in the early stages and may not lead to any formal claims of wrongdoing. The Journal noted the SEC enforcement division’s asset-management unit in Washington, DC, is handling the investigation.

A spokesperson for Melvin Capital declined to comment.

Last year, the meme-stock rally crippled the firm’s holdings, as retail traders’ enthusiasm made the hedge fund’s short positions backfire dramatically. Melvin Capital lost $6.8 billion in January 2021, which was more than half of its assets under management.

In 2022, the money manager endured more losses amid the bear market and sell-off in growth stocks. In May, Melvin founder Gabriel Plotkin announced the firm would return money to its investors.

Plotkin, a former top portfolio manager, founded Melvin Capital in 2014. Up until 2021, it had been one of the best-performing funds on Wall Street.

But by the close of May 2022, clients who had invested in Melvin at the beginning of 2021 saw roughly 57% in losses.

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