Reliance Retail has acquired 25.8 per cent stake in online delivery platform Dunzo
Reliance Industries Limited’s (RIL) retail arm has invested $200 million in online delivery platform Dunzo as it looks to get a foothold in the country’s rapidly growing market of quick delivery.
Reliance Retail has acquired a 25.8 per cent stake in Dunzo for $200 million (around Rs 1,488 crore).
Dunzo raised $240 million in its latest funding round that was led by Reliance Retail Ventures Limited.
Existing investors Lightbox, Ligthrock, 3L Capital and Alteria Capital had also participated in the funding round.
“This round is a reinstatement of confidence of existing and new investors in Dunzo’s potential and success in creating an exceptional user experience. The capital will be used to further Dunzo’s vision to be the largest quick commerce business in the country, enabling instant delivery of essentials from a network of micro warehouses while also expanding its B2B business vertical to enable logistics for local merchants in Indian cities,” the two entities said in a statement.
under the direct management of its famous founder turned out to be a bit of a letdown. Revenue and operating income for the second quarter both fell shy of Wall Street’s estimates, as did the high end of the company’s revenue forecast for the current quarter. It was the first time the e-commerce titan missed the high end of its own sales projections in two years, according to data from FactSet.
as the largest U.S. company by annual sales some time next year, while still growing at double-digit rates. Growth at the company’s crucial AWS cloud business also picked up, with revenue jumping 37% year over year compared with a 32% rise in the last quarter. That lines up with trends shown by cloud rivals
and Google earlier this week, suggesting that the market leader, AWS, is at least holding its ground.
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But the boom in online sales Amazon enjoyed at the start of the pandemic created a challenging comparison for the most recent quarter. Thursday’s results confirmed the suspicions of some analysts that the company’s Prime Day sales event in late June underwhelmed. Amazon’s online stores segment saw revenue grow by only 16% to $53.2 billion in the second quarter, falling well short of analysts’ targets. Revenue growth from third-party and subscription services decelerated. Advertising revenue, reflected in the company’s “Other” segment, showed a strong jump of 87% year over year to $7.9 billion. But advertising still contributes only about 7% to Amazon’s total revenue.
The results create a bit more of a challenging setup for new CEO
as Amazon will face difficult comparisons for the rest of the year following its pandemic-fueled sales jump in 2020. But the bar seems low enough. The midpoint of the company’s revenue projection for the third quarter represents growth of 13% year over year. That would be Amazon’s slowest growth rate in 20 years, even with the pandemic picking back up and possibly driving more sales online.
Reliance Retail is likely to acquire a majority stake of 66 per cent in Just Dial
Reliance Retail, the retail arm of billionaire Mukesh Ambani-led Reliance Industries Limited, acquired a stake of 40.95 per cent for Rs 3,497 crore in leading internet technology B2B company Just Dial. As per the definitive agreements on July 16, the retail company will make an open offer to acquire up to 26 per cent in accordance with takeover regulations set by market regulator SEBI.
This means that Reliance Retail may acquire a majority stake of 66.95 per cent in Just Dial. With the acquisition, Just Dial Founder VSS Mani will continue to lead the company as its managing director and chief executive officer (CEO).
Out of the total 40.95 per cent acquired by the Reliance Industries’ subsidiary, it has received a preferential allotment of 2.12 crore equity shares, which is equivalent to 25.33 percent post preferential share capital at a price per share of Rs 1,022.25.
Reliance Retail has acquired 1.31 crore equity shares from VSS Mani, which is equivalent to 15.62 percent post preferential share capital at a price per share of Rs 1,020.00.
The capital infused by Reliance Retail will help drive the growth and expansion of the country’s leading local search engine platform into a comprehensive local listing and commerce platform.
The investments will leverage Just Dial’s existing database of around 30.4 million listings and its existing consumer traffic of nearly 129.1 million quarterly unique users
”The investment in Just Dial underlines our commitment to New Commerce by further boosting the digital ecosystem for millions of our partner merchants, micro, small and medium enterprises,” said Ms Isha Ambani, Director of Reliance Retail Ventures Limited (RRVL).
The transaction is subject to shareholder as well as other customary closing conditions and approvals. Just Dial recently launched its B2B marketplace platform – JD Mart which is aimed at equipping wholesalers, manufacturers, retailers, and distributors in the country with internet technology for a post-COVID-era.
Last year, Reliance Retail executed the country’s largest fundraising in the retail sector – raising Rs 47,265 crore from global investors. The country’s leading retailer reported a net profit of Rs 5,481 crore for the financial year 2020-21.
Here’s what we’re watching ahead of the opening bell on Tuesday.
U.S. stock futures wavered, suggesting indexes would hover close to their record levels as investors awaited inflation data and earnings from the nation’s biggest banks.
Futures tied to the S&P 500 were relatively flat after the broad index climbed to its 39th record closing levels of the year. Dow Jones Industrial Average futures weakened 0.1%, while Nasdaq-100 futures were up 0.3%.
What’s Coming Up
U.S. inflation data for June is scheduled for 8:30 a.m. ET. Economists are forecasting a 5% increase in the consumer-price index from a year ago.
extended its fall back to earth, with its shares shedding more than 5% in premarket trading after Monday’s 17% drop. The company said it would sell up to $500 million of stock in a new share sale, a day after founder Richard Branson returned safely from a landmark trip to the edge of space.
slid 3.8% premarket. It has lost nearly 25% of its value this month so far.
The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite all hit record closes on Monday—and in the S&P 500’s case, it was the 39th record close this year, beating the Dow’s 27 records and the Nasdaq’s 24. The broad index is ahead of the others in terms of gains this year too, with a nearly 17% rise.
European stocks have also been on the rise, with both the Stoxx Europe 600 and Germany’s DAX index notching record highs on Monday.
On this day in 1852, Wells, Fargo opened for business in San Francisco and Sacramento. It was founded by Henry Wells and William G. Fargo to convert gold dust into cash for miners, transport and safeguard letters, gold nuggets and other valuable byproducts of the California Gold Rush.
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Global coffee prices are climbing and threatening to drive up costs at the breakfast table as the world’s biggest coffee producer, Brazil, faces one of its worst droughts in almost a century.
Retail inflation for industrial workers rose slightly in May 2021
There was a slight increase in retail inflation for industrial workers in May 2021, as it went up to 5.24 per cent from 5.14 per cent in April 2021 as per the all India consumer price index for industrial workers.
According to data released by the Labour Ministry, the increase was mainly influenced by rise in prices of food items, petroleum products and also because of dearer mobile phone rates.
At the same time, food inflation was also higher at 5.26 per cent in May 2021 against 4.78 per cent in April 2021.
The index for industrial workers for May 2021 increased by 0.5 points and stood at 120.6 points. It was 120.1 points in April this year.
On the basis of monthly percentage change, the index for May 2021 increased by 0.42 per cent compared to the previous month of April 2021.
The rise in the current index was due to the Food & Beverages group which contributed 0.35 percentage point to the total increase.
Some of these food items were rice, arhar dal, masur dal, fish fresh, goat meat, eggs-hen, edible oil, apple and banana among others.
It is a far cry from last year, when the so-called FAANG stocks took a commanding role in a market driven by the coronavirus pandemic.
This year, as the economy strengthens and vaccinations diminish the pandemic in the U.S., that synchronized march has broken down. Investors have broadened their sights beyond the familiar names whose technology businesses thrived as many Americans switched to working, shopping and socializing at home. With a re-energized economy creating opportunity across industries, money managers have options, as well as renewed scrutiny for stocks whose lofty valuations and widespread popularity could limit further upside.
While Alphabet Class A and Facebook shares are up 37% and 21%, respectively, other members of the group have weighed on the market. Amazon shares are up 7.1% in 2021, lagging behind the 11% rise in the benchmark S&P 500. Apple and Netflix have fared even worse, down 1.7% and 7.4% for the year.
Among the hundreds of S&P 500 stocks outpacing Apple—the U.S. benchmark’s largest company by market value—are many that were hit hard by the pandemic. Cruise company
With a healthier economy improving prospects for many stocks, investors have less reason to snap up ones that look expensive. That is particularly the case as a spurt of inflation focuses investors on the question of when the Federal Reserve will begin lifting interest rates from current, rock-bottom levels.
Fed officials last Wednesday indicated they anticipate raising rates by late 2023, sooner than previously expected. When rates rise, commonly used models show the far-off cash flows factored into many technology stock’s price tags are less valuable.
In recent months, investors haven’t been willing to pay as much for the profits of some of the megacap tech names with the richest valuations. Analyst estimates for Amazon’s per-share profit over the ensuing 12 months rose more than 40% from the end of December through last week, according to FactSet. But since Amazon’s share price rose only 7.1%, the stock’s forward price/earnings multiple contracted from nearly 73 times to about 55 times.
In the case of Netflix, expectations for forward earnings have risen while its share price has fallen. That has compressed the stock’s price/earnings ratio from almost 60 at the end of 2020 to about 43 last week.
Apple has seen its valuation fall since the start of the year, as projected earnings increased while its share price is nearly unchanged. It traded last week at about 25 times expected earnings—down from more than 32 times on Dec. 31.
After owning Apple shares for years,
chief investment officer of wealth-management firm The Bahnsen Group, said he sold them late last year because he thought they were too rich.
For much of 2020, a badly constricted economy pushed investors toward stocks—like the FAANG names—whose businesses were less affected and whose future growth became even more alluring with the drop in interest rates. The Russell 1000 Growth Index advanced 37% for the year, while the Russell 1000 Value Index eked out a 0.1% gain—the largest annual performance gap between the two style benchmarks in FactSet data going back to 1979.
Big tech stocks were among the leaders of that rally. Apple shares climbed 81% in 2020—last August becoming the first U.S. public company to surpass $2 trillion in market value—while Amazon rose 76% and Netflix gained 67%. Facebook added 33% for the year, and Alphabet 31%.
“Philosophically if you’re buying those very large-cap stocks—let’s say a trillion dollars and above—you’re doing so not because you think you’ve found some undiscovered gem,” said
who manages the Firsthand Technology Opportunities Fund. “You’re doing it more as an expression of a tech thesis, that people are going to be rotating to tech.”
That rotation began to unwind in November with news that a Covid-19 vaccine was emerging. Value stocks, which trade at low multiples of book value and tend to be more sensitive to the health of the economy, began a monthslong rally. In March, value stocks were beating growth stocks by the widest margin in two decades, although the gains have eroded recently.
Among big tech stocks, Alphabet and Facebook have served as a kind of reopening play, reporting a surge in advertising. Facebook’s profit in its latest quarter nearly doubled from a year earlier, while Alphabet’s earnings more than doubled.
“They’ve had this huge resurgence in online advertising and that’s really been driving the stocks,” said
senior portfolio manager at Synovus Trust Co. “All these businesses are reopening, coming back on, the economy’s accelerating. Where do they go to promote themselves? A lot of them go to Facebook.”
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Netflix, by contrast, disappointed investors when it reported that its subscriber growth had slowed as the economy reopened. The streaming giant got a boost from the pandemic as many consumers were forced or chose to stay home, and it ended 2020 with more than 200 million subscribers.
Those fundamentals matter more now for investors, who seem less inclined to view the market in the same broad terms as they did last year.
“These just are different companies that for a long time were highly correlated because they were popular, they were performing well,” Mr. Bahnsen said. “There really was never an investment logic to a streaming company that was first to market trading in tandem with a social media company.”
U.S. stock futures wavered near the flat line ahead of a policy decision from the Federal Reserve.
Futures on the S&P 500 were unchanged and Dow Jones Industrial Average futures edged down 0.1%. The contracts don’t necessarily predict moves after the opening bell.
In Europe, the Stoxx Europe 600 added 0.3% in morning trade, and it is at its highest level in a year. Financials and healthcare sectors led gains while consumer staples and communication services sectors lost ground.
Etn. Fr. Colruyt NV fell 8%, posting its fourth consecutive session of declines.
The U.K.’s FTSE 100 climbed 0.4%. Other stock indexes in Europe also mostly climbed as France’s CAC 40 gained 0.3%, the U.K.’s FTSE 250 gained 0.5% and Germany’s DAX climbed 0.1%.
The British pound strengthened 0.2% against the U.S. dollar, with 1 pound buying $1.41 whereas the Swiss franc and the euro traded flat against the dollar.
In commodities, Brent crude was up 0.5% to $74.38 a barrel. Gold also strengthened 0.2% to $1,859.70 a troy ounce.
The yield on German 10-year bunds declined to minus 0.233% and 10-year U.K. government debt known as gilts yields were up to 0.768%. 10-year U.S. Treasury yields edged up to 1.500% from 1.498%. Yields move inversely to bond prices.
Indexes in Asia mostly fell as Hong Kong’s Hang Seng shed 0.4%, Japan’s Nikkei 225 index was lower 0.5%, and China’s benchmark Shanghai Composite was down 1.1%.
Last week, the new chairman of the Securities and Exchange Commission,
said he has asked SEC staff to explore changes to the rules governing how investors’ orders are handled. The review will include a practice known as payment for order flow, in which brokerages send many of their customers’ orders to trading firms in exchange for cash payments. Virtu’s stock sold off sharply after Mr. Gensler’s remarks.
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Payment for order flow has existed for decades and has come under scrutiny before. But it received fresh attention after the wild volatility in GameStop shares in January. At one congressional hearing in February,
Rep. Sean Casten
(D., Ill.) referred to Robinhood Markets Inc.’s practice of sending orders to high-speed traders as “a conduit to feed fish to sharks.”
Firms such as Robinhood and Virtu say payment for order flow is misunderstood. They say small investors benefit from the practice because it results in better prices than they would get at public exchanges like the New York Stock Exchange and the
Collectively, that saves investors billions of dollars a year, industry data show.
Payment for order flow has also made it possible for brokerages to provide zero-commission trading. If the practice were banned, it is unclear whether brokerages like Robinhood could still let investors trade stocks and options without charging commissions.
Virtu Chief Executive
has been one of the most vocal defenders of payment for order flow. In March, upset by comments that CNBC “Squawk Box” host
Andrew Ross Sorkin
made about how high-speed traders profited from investors’ orders, Mr. Cifu tweeted his phone number at Mr. Sorkin and said: “Let me know when you want to learn how markets work.” Soon afterward, the CEO went on the show to discuss payment for order flow with Mr. Sorkin.
In an interview, Mr. Cifu warned that banning the practice and requiring that individual investors’ orders be sent to exchanges would harm small investors. “Retail investors would get a much, much worse experience,” he told The Wall Street Journal.
Firms like Virtu, known in the trading business as wholesalers, make money from investors by filling their orders throughout the day and collecting a small spread between the buying and selling price of each stock. Under SEC rules, they can’t fill the trades at prices worse than the best available price on exchanges—a benchmark known as the national best bid or offer, or NBBO.
Because individuals tend to make small trades, wholesalers can trade against them knowing the individuals aren’t likely to push stock prices up or down, the way that institutional investors can move a stock through heavy buying or selling. That allows wholesalers to make more consistent profits when filling small investors’ orders than when trading on exchanges—a benefit they are willing to pay brokers for, in the form of payment for order flow.
Meanwhile, small investors can benefit from the arrangement by getting prices better than the NBBO, often by just a fraction of a penny a share.
The resulting savings to the investor are known as “price improvement.” In a report released on Thursday, Virtu said standard analyses underestimate the degree to which small investors benefit from having their orders filled by wholesalers.
Using a broader measure of price improvement than the one usually used, Virtu said it saved investors just over $3 billion on their stock trades in 2020. By comparison, data disclosed by wholesalers under SEC reporting rules shows Virtu provided around $950 million worth of price improvement last year.
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The difference was largely because of how Virtu calculated the savings when an investor does a trade in a larger size than what’s publicly displayed on exchanges. For instance, suppose that 200 shares of
are available on exchanges at the national-best-offer price, and an investor buys 500 shares of the stock from Virtu at a slightly lower price.
In that scenario, Virtu’s methodology counts the savings based on how much it would cost to buy all 500 shares using price quotes on exchanges—not just at the national best offer, a price at which only 200 shares are being quoted, but at the higher prices where the remaining 300 shares would be filled.
Critics were unconvinced by Virtu’s analysis, calling it self-serving. Payment for order flow is fundamentally flawed because it poses a conflict of interest for brokers, said
executive director of Healthy Markets Association, a trade group for institutional investors.
“There’s a simple question that every investor needs to ask, and that’s whether their broker is trying to get them the best prices or maximize their own profits,” Mr. Gellasch said.
Virtu is the second-largest wholesaler in the U.S. stock market by volume, handling between 25% to 30% of individual investors’ equities order flow, and it paid more than $300 million for order flow last year, according to Bloomberg Intelligence.
Other major wholesalers include Citadel Securities, which has the largest market share, and Susquehanna International Group LLP. Virtu doesn’t break out how much it makes from trading against small investors, but the meme-stock frenzy has helped lift the company’s stock 15% year-to-date.
Mr. Cifu acknowledged that payment for order flow poses a conflict of interest for brokerages, but he said the conflict was already being managed through SEC rules. The regulator requires brokerages to publicly disclose their payment-for-order-flow practices. Brokerages also have a duty to seek best execution for their customers, and some have been fined for failing to fulfill that obligation when routing orders.
The SEC’s review will eventually confirm that the stock market works well for small investors, Mr. Cifu predicted.
“I am so confident in the value that we, Citadel and Susquehanna in partnership with these retail brokers have provided to the ecosystem,” he said, “that any right-minded person looking at this and looking at the data will conclude, ‘Man, this is a great trading system. This is the envy of the world.’”
More on Payment for Order Flow
Recent WSJ articles on the trading practice, selected by the editors
On a summer Friday afternoon last year, hedge-fund manager
broke bankruptcy laws. That evening on a recorded line, he pleaded with a banker to say the whole thing was a misunderstanding.
“Maybe I should go to jail,” Mr. Kamensky said on the call.
Mr. Kamensky reports to federal prison on June 18. His hedge fund is in the process of closing, and a career that included stints at white-shoe law firm Simpson Thacher & Bartlett and storied hedge fund Paulson & Co. has been wrecked.
“He came undone,” U.S. District Judge
said during a court hearing on May 7.
Mr. Kamensky, 48 years old, worked in the high-stakes, high-conflict world of distressed investing, which aims to profit from companies teetering on the brink of or in bankruptcy. He launched his hedge fund, Marble Ridge, in 2015 with $20 million and was managing nearly $1 billion a few years later.
Running his own firm became stressful for Mr. Kamensky. He was anxious, had difficulty sleeping, lost weight and had trouble concentrating at the office or at home, he says. His fund, while it grew quickly, was still a relatively small player in the distressed market, which is dominated by giant private-equity companies, hedge funds and major law firms.
In 2017, Mr. Kamensky began working with a psychologist and a sleep specialist. He also consulted an executive coach, while in the middle of the day he would head to a meditation studio. He began to feel healthier and more relaxed, he says. He enjoyed family time again, playing games like Scrabble and doing crossword puzzles.
His efforts to control his emotions began to unravel in a bitter fight over struggling luxury-goods retailer Neiman Marcus Group Ltd. Things got worse in the coronavirus pandemic, which removed the support system of coaches and therapists that Mr. Kamensky had erected to help deal with his pressures.
Mr. Kamensky began buying bonds of the department-store chain in 2018 for about 60 cents on the dollar. Neiman was owned by private-equity firm
, which made an ill-fated bet that the chain could thrive despite an onslaught from online competitors. Neiman had one hidden gem; under Ares ownership it had acquired a thriving German online site called MyTheresa.
Interviews with Mr. Kamensky and court documents and transcripts show how the fight over MyTheresa led to Mr. Kamensky’s downfall.
Seeing the value of MyTheresa, Ares decided to separate it from Neiman, giving itself full control of the online site and leaving the bondholders with just the company’s bricks-and-mortar stores. The move borrowed from classic private-equity tactics, but still came as a surprise to Mr. Kamensky, who said he thought Ares had gone too far by taking a company’s crown-jewel asset for nothing in return.
“It’s like someone takes your wallet out of your back pocket on the subway and stares you right in the face while doing it,” he said. A spokesperson for Ares declined to comment.
In press releases that revealed his private letters to Ares’s board, Mr. Kamensky accused the private-equity firm of “lining its pockets” and “looting” Neiman. He said Ares broke the law by moving assets out of an insolvent company and had conflicts of interest. Word got out that he would sue to stop the deal.
Then Ares and Neiman fought back.
a lawyer representing Neiman, warned that if Mr. Kamensky sued, “we’re going to come down on you like a pile of bricks,” Mr. Kamensky later testified. Mr. Sprayregen, a bankruptcy lawyer at Kirkland & Ellis LLP, didn’t return calls seeking comment.
Mr. Kamensky’s fund did file suit in 2019. Neiman responded, stepping up the fight by suing Marble Ridge for defamation, alleging that Mr. Kamensky’s lawsuit hurt the retailer’s business position. “A defamation suit is unheard of,” he says. While litigation is common in the world of distressed debt and restructuring, a defamation suit is unusual.
Neiman eventually agreed to restore nearly half of MyTheresa to its creditors. Almost all of the creditors went along, but Mr. Kamensky thought it was a bad deal and continued to push Ares to give more of MyTheresa to Neiman’s creditors. “It felt like I was tilting at windmills,” says Mr. Kamensky, a reference to the novel “Don Quixote,” which he loved as a youth.
With the battle over MyTheresa already joined, Covid-19 hit and Neiman filed for bankruptcy. Mr. Kamensky’s fund fell 12%, adding to his pressures.
‘There was a fuse exploding. I lost it.’ ”
— Dan Kamensky
Staying at his Long Island home because of the pandemic, he worked in a cramped bedroom that he had converted into an office. A puppy once relieved himself on Mr. Kamensky’s foot during a business call. Sometimes, after working late into the night, Mr. Kamensky slept in the same room.
It became difficult to work with his coach and consult with colleagues. “Everything became more ad hoc,” he says.
As one of the few Neiman bondholders opposing the chain’s restructuring plan, Mr. Kamensky took a seat on Neiman’s creditors’ committee, which was tasked with advocating for the rights of investors during bankruptcy proceedings. He had to act in the interest of all creditors, rather than push for things that would benefit only his firm.
Once again a deal was reached on MyTheresa but Mr. Kamensky rejected it. He had spent millions on the fight and wanted to have the right to buy a bigger stake in MyTheresa to potentially boost his fund’s profits. He would offer to buy the preferred shares in MyTheresa that would be issued to other creditors.
By July, he was close to getting what he wanted and his hedge fund had recouped about half of its losses. Mr. Kamensky was feeling optimistic. But on July 31, he was blindsided by word that another bidder was also trying to buy the preferred shares. The bidder, he learned, was investment bank Jefferies LLC, one of his longtime brokers.
He feared Jefferies could scuttle a deal he had been pursuing for more than two years, just days before completion.
“There was a fuse exploding,” Mr. Kamensky says. “I lost it.”
At 3:20 that summer Friday afternoon, he texted
his contact at Jefferies, “DO NOT SEND IN A BID.” In a phone call 20 minutes later with Mr. Femenia and
a Jefferies colleague, he yelled and cursed at the men, according to a Justice Department probe.
Mr. Geller not long after told a lawyer for the Neiman creditors committee that Jefferies wouldn’t bid because Mr. Kamensky told the firm to back off.
Mr. Kamensky realized he had violated the law. As a member of the creditors committee, he shouldn’t try to stop a higher bid that could benefit other investors.
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Four hours after he made his threat, Mr. Kamensky called Mr. Femenia again. On the call, he pleaded with Mr. Femenia to tell a different story to authorities—that Mr. Kamensky wanted Jefferies to bid only if it was serious about going through with the deal. “I pray you tell them that this was a huge misunderstanding,” Mr. Kamensky said on the call, which was recorded by Mr. Femenia. He said he could go to jail without Mr. Femenia’s help.
The creditors committee lawyer filed a report on possible wrongdoing in bankruptcy court. Mr. Kamensky apologized while admitting his wrongdoing to Justice Department lawyers.
In September, Mr. Kamensky was arrested in a surprise raid at his home, and in February pleaded guilty to one charge of extortion and bribery related to the Neiman bankruptcy.
Upon entering prison on Friday, Mr. Kamensky faces weeks of solitary confinement in keeping with Covid-19 guidelines. After completing his six-month sentence, he could face a lifetime ban from serving as an investment adviser.
While waiting to go to prison, Mr. Kamensky has given lectures to business and law students about the dangers of intense stress and letting emotions undermine one’s judgment. He spoke at several graduate schools, including the NYU Stern School of Business and the Duke University School of Law. He wonders, if he had been in his office with colleagues around, would he have reacted so quickly and angrily.
Mr. Kamensky is a “good man, but one who lost his moorings,” Judge Cote said at his sentencing. She said it wasn’t clear to her whether his actions had caused economic harm to creditors. Prosecutors requested a sentence of 12 to 18 months. Mr. Kamensky will serve six months of probation after prison.
“I regret letting anger get the best of me,” Mr. Kamensky says.
boomeranged this month on Mudrick Capital Management LP, the latest hedge fund to fall victim to swarming day traders.
Mudrick’s flagship fund lost 10% in just a few days as a jump in AMC’s stock price unexpectedly triggered changes in the value of derivatives the fund held as part of a complex trading strategy, people familiar with the matter said.
The setback comes months after a group of traders organizing on social media helped send the price of
and other stocks soaring in January, well beyond many investors’ views of underlying fundamentals.
The development prompted many hedge funds to slash their exposure to meme stocks. Mudrick Capital’s losses highlight how risky retaining significant exposure to such companies can be—even backfiring on a hedge-fund manager who was mostly in sync with the bullishness of individual investors.
the firm’s founder, had been trading AMC stock, options and bonds for months, surfing a surge of enthusiasm for the theater chain among individual investors. But he also sold call options, derivative contracts meant to hedge the fund’s exposure to AMC should the stock price founder. Those derivative contracts, which gave its buyers the right to buy AMC stock from Mudrick at roughly $40 in the future, ballooned into liabilities when a resurgence of Reddit-fueled buying recently pushed AMC’s stock to new records, the people said.
As part of the broader AMC strategy, executives at Mudrick Capital were in talks with AMC to buy additional shares from the company in late May. On June 1, AMC disclosed that Mudrick Capital had agreed to buy $230 million of new stock directly from the company at $27.12 apiece, a premium over where it was then trading.
Mudrick immediately sold the stock at a profit, a quick flip that was reported by Bloomberg News and that sparked backlash on social media.
“Mudrick didn’t stab AMC in the back…They shot themselves in the foot,” read one post on Reddit’s Wall Street Bets forum on June 1. Other posts around that time referenced Mudrick as “losers,” “scum bags” and “a large waving pile of s—t with no future.” Members of the forum urged each other to buy and hold.
Inside Mudrick, executives were growing apprehensive as the AMC rally gained steam. The firm’s risk committee met on the evening of June 1 after the stock closed at $32 and decided to exit all debt and derivative positions the following day.
It was a day too late.
AMC’s stock price blew past $40 in a matter of hours June 2, hitting an intraday high of $72.62. Call option prices soared amid a frenzy of trading that Mudrick Capital contributed to and by the end of the week, the winning trade had turned into a bust. Mudrick Capital made a 5% return on the debt it sold but after accounting for its options trade, the fund took a net loss of about 5.4% on AMC.
Mr. Mudrick’s fund is still up about 12% for the year, one of the people said. Meanwhile, investors who bought AMC stock at the start of the year and held on have gained about 2000%.
The impact of social media-fueled day traders has become a defining market development this year, costing top hedge funds billions of dollars in losses, sparking a congressional hearing and drawing scrutiny from the U.S. Securities and Exchange Commission. More hedge funds now track individual investors’ sentiment on social media and pay greater attention to companies with smaller market values whose stock price may be more susceptible to the enthusiasms of individual investors.
Mr. Mudrick specializes in distressed debt investing, often lending to troubled companies at high interest rates or swapping their existing debt for equity in bankruptcy court. Mudrick manages about $3.5 billion in investments firmwide and holds large, illiquid stakes in E-cigarette maker NJOY Holdings Inc. and satellite communications company
from such exchanges. The flagship fund reported returns of about 17% annually from 2018 to 2020, according to data from HSBC Alternative Investment Group.
But distressed investing opportunities have grown harder to find as easy money from the Federal Reserve has given even struggling companies open access to debt markets. Mr. Mudrick has explored other strategies, launching several SPACS and, in the case of AMC, ultimately buying stock in block trades.
Mr. Mudrick initially applied his typical playbook to AMC, buying bonds for as little as 20 cents on the dollar, lending the company $100 million in December and swapping some bonds into new shares. Theater attendance, already under pressure, had disappeared almost entirely amid Covid-19 pandemic lockdowns, and AMC stock traded as low as $2. He reasoned that consumers would regain their appetite for big-screen entertainment this year as more Americans got vaccinated.
Day traders took their first run at AMC in late January, urging each other on with the social-media rallying cry of #SaveAMC and briefly lifting the stock to around $20. AMC’s rising equity value boosted debt prices—one bond Mudrick Capital owned doubled within a week—quickly rewarding Mr. Mudrick’s bullishness. AMC capitalized on its surging stock price to raise nearly $1 billion in new financing in late January, enabling it to ward off a previously expected bankruptcy filing.
Around that time, Mr. Mudrick sold call options on AMC stock, producing immediate income to offset potential losses if the theater chain did face problems. The derivatives gave buyers the option to buy AMC shares from Mudrick Capital for about $40—viewed as a seeming improbability when the stock was trading below $10.
Mr. Mudrick remained in contact with AMC Chief Executive
about providing additional funding, leading to his recent share purchase. But he kept the derivative contracts outstanding as an insurance policy, one of the people familiar with the matter said.
—Alexander Gladstone and Soma Biswas contributed to this article.