WallStreetBets' founder on GameStop: 'I didn't think it would go this far' (2024)

Jaime Rogozinski always knew WallStreetBets, the Reddit forum he founded, was part of something big – but even he wasn’t prepared for quite how big.

This week WallStreetBets was at the center of a full-scale war between Wall Street and an army of small investors over GameStop, an ailing video games chainstore, that has shaken financial markets, angered billionaire bankers and made unlikely allies of political enemies.

“I’m amazed how far it’s gone,” Rogozinski told the Guardian from his home in Mexico City. Conceived around the time that social media was propelling democratic movements worldwide, WallStreetBets has played an important, if now contentious, part in lowering barriers of entry to financial information.

The frenzy has also taken on political overtones, as if the elective struggle of 2020 had simply transferred to competing ideologies about the distribution of wealth. To some, the activity signals the barbarians have reached the gates to the high citadels of finance; to others, it is a liberation from the control of entrenched masters in a corrupted system.

“I predicted it would go in this direction but I didn’t think it would go this far. I don’t think anyone thought this was possible. To an extent, coronavirus has helped fuel the velocity and direction of the changes taking place,” he says.

Rogozinski, 39, is still trying to get to grips with the role his 2012 creation, now with more than 3.5 million subscribers, is playing in shaking up financial markets. In part he sees it as payback for the way financiers have behaved.

“Wall Street has always been getting away from its original intent, which was to provide capital to society. Little by little it has turned into a casino, a place for speculative games,” he says.

That casino mentality was on full display this week when GameStop – a 37-year-old struggling retailer – became the world’s hottest investment. Small investors bonded together on the Reddit forum, spurred on by members with names such as Roaring Kitty, to take on some of Wall Street’s biggest investors who they believed had made a bad bet on the company collapsing.

The professional investors had “shorted” GameStop – a bet its price will collapse – along with other companies that have since soared including the cinema chain AMC and BlackBerry.

Incredibly, the WallStreetBets crowd won the round, forcing some out of the trade and causing consternation and fears of an electronic financial insurgency on Wall Street. As of early on Friday, GameStop short sellers had lost $19.75bn so far this year, according to analyst S3 Partners.

On Thursday, popular trading conduits – Robinhood and Ameritrade – clamped down on retail investors’ bets on several highly popular but volatile stocks, locking traders out of the market and drawing sharp criticism from some users and politicians from the conservative Texas senator Ted Cruz and the self-described democratic socialist congresswoman Alexandria Ocasio-Cortez, longtime sparring partners.

Rogozinski can’t say if the brokers were correct to step in to limit trading, only that given the scale of the disruption, authorities could be expected, rightly or wrongly, to find some channel to curb the activity. “Whether or not some of this trading is legal or not, what we’re seeing is not normal, so some outside pressure is being put on brokers to do this to their customers because it doesn’t make business sense.”

Rogozinski started WallStreetBets as an antidote to staid advice on trading forums and insider-focused commentary on financial news cable stations like CNBC. What individual investors needed, he figured, was something irreverent, homegrown and inclusive. WallStreetBets was given the tagline: “Like 4Chan found a Bloomberg Terminal.”

At the time, Rogozinski was single and working as an information technology consultant at the Inter-American Development Bank in Washington DC, a job he has since traded for family life in Mexico and a job in financial tech. “I started WallStreetBets when I had time and money I could afford to lose. Now I’m a family man and my appetite for risk has diminished. I’ve moved past that stage.”

Rogozinski hasn’t been associated with the chat platform since April, and has deleted a subforum on Discord he felt had become infiltrated with extremist views and offensive comments that had little to do with finance.

The backlash to the Discord deletion was swift and it may speak to the nature of the moment that Rogozinski, who had published a book, WallStreetBets: How Boomers Made the World’s Biggest Casino for Millennials, was expelled by other moderators, which at one time included the disgraced pharmaceutical executive Martin Shkreli, before he was convicted of securities fraud.

Some have seen WallStreetBets as the offspring of the 2010 Occupy Wall Street protests – a popular uprising against the excesses of capitalism and the bailout of banks after the last financial crisis. Now armed with effective tools to register their unhappiness with the system, the peasants have revolted. It’s a conjunction, he says, that doesn’t necessary fit.

“I can see parallels, and appreciate the narrative of a feelgood story, but we’re not in the same moment. In 2010, the grievances being aired were different. I’m confident to say that the people doing this didn’t start with an agenda. This most likely happened because people were trying to make money and happened to organize around this type of trade.

“The sheer entertainment value of WallStreetsBets begs for there to be a nemesis and for someone to be on the other side of the trade. A year ago they were short-sellers. It just so happens short-sellers are now on the target side. They’re nimble and when the time comes they’ll switch it up.”

Not withstanding the overarching purpose of making money, Rogozinski says it is correct to interpret the forum as part of an effort to democratize Wall Street, just as other forms of social media have played a part in democratizing politics. They, too, have come with unpredictable results.

“These are natural forces that come as a consequence of lowering the barriers to entry. I can’t take credit for Robinhood, but they fulfilled the ability for anybody to participate in this. They’re taking advantage of access.”

But Rogozinski acknowledges dangers in placing sophisticated options plays in the hands of individual investors that leverage up and take advantage of a flaw in exotic investments “so complex that they’re virtually unexplainable to non-professionals”.

“It’s democratic, yes, but to give amateurs access to such sophisticated plays can be incredibly dangerous. Shifts in the composition of the markets, combined with the speed of the shifts, is outlining fragility in the system.” Unintended consequences, he says, “should not be ruled out”.

Joshua Mitts, an expert on hedge fund activism, short-selling and securities, at Columbia University, believes retail investors have been victims of trading strategies by sophisticated investors. “You can see systematic downward price manipulation that often harms what are often a loyal devoted group of retail investors in a company. Those investors have now decided to take matters into their own hands,” he says.

Mitts, who was recently cited in a Institutional Investor report, The Dark Money Secretly Bankrolling Activist Short-Sellers, says that from a policy standpoint, the Securities and Exchange Commission, the US’s top financial watchdog, has taken little action to protect individual investors and “no regulatory information on rules of the road for social media trading”.

The GameStop drama, he adds, “could be a dangerous consequence of regulatory inaction”.

But Mitts questions the narrative of a disparate, populist rebellion. “We don’t know if this is being engineered. Individual investors could be being defrauded on these forums. It’s an open question. It could very well be that this bubble could have be an engineered misinformation campaign, and the need to know is quite urgent.”

Rogozinski, too, doesn’t discount the timing of GameStop run-up, effectively pushing politics and the pandemic aside, and arriving so soon after a resolution to the political tumult of 2020.

“The timing is interesting, absolutely,” Rogozinski says. “But it is natural for an event that gets this much attention to turn political. It’s got the attention of the White House, big-time senators in Congress, and there’s no avoiding it. But within the forum itself, politics is almost never discussed.”

Rogozinski is a clueless as anyone as to how this will play out but he is certain someone will be made a scapegoat. “You know they’re going through regulatory statutes looking for anything to apply to this – one, to apply pressure to brokers and secondly to get new legislation drafted.”

Inevitably, he says, regulators will “step in and find at least one person guilty of fleecing someone or breaking a regulatory statute”.