Musk, Palihapitiya Threw 'Jet Fuel' On GameStop Short Squeeze, David Einhorn Says

Hedge fund manager David Einhorn has blamed venture capitalist Chamath Palihapitiya and Tesla Inc. TSLA CEO Elon Musk for throwing "jet fuel" on the GameStop Corp. GME trading frenzy in January this year, according to a report by Reuters.

What Happened: Einhorn said he believes the GameStop short squeeze in January was fueled in large part by Palihapitiya and Musk, according to the report, which cited Einhorn’s comments in a quarterly letter to Greenlight Capital investors published Thursday.

The Greenlight Capital founder said Palihapitiya may have had an incentive to harm popular trading platform Robinhood as it competes with fintech startup SoFi, which was backed by Palihapitiya.

Further, Einhorn said that if regulators wanted Musk to stop manipulating stocks, “they should have done so with more than a light slap on the wrist when they accused him of manipulating Tesla’s shares in 2018.”

Einhorn also said U.S. lawmakers should probe regulators instead of investors if they are looking for answers to how day traders were able to wrest control of GameStop's share price from established hedge funds.

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Why It Matters: Shares of video game retailer GameStop and other heavily-shorted stocks such as AMC Entertainment Holdings Inc. AMC skyrocketed in January amid a rally fuelled by retail traders belonging to the subreddit channel r/WallStreetBets bid up the stocks to create a short squeeze.

GameStop shares traded wildly in January in a battle between short sellers and retail traders. The wild price swings in the heavily-shorted stocks caused heavy losses for hedge fund Melvin Capital Management, among others.

Billionaire Chamath Palihapitiya joined the trading frenzy in late January by announcing he had bought call options in GameStop with a strike price of $115. Musk later waded into the GameStop drama by tweeting “Gamestonk!!” with a link to WallStreetBets. Highly followed investors like Musk, who has 43 million followers on Twitter, have caused large movements in stocks.

In response to the short squeeze drama, the U.S. House of Representatives held a special hearing in February, in which the CEOs of Reddit, Robinhood, Melvin Capital and hedge fund Citadel Securities testified about the circumstances surrounding the GameStop short squeeze and the factors driving Robinhood’s decision to restrict GameStop buying.

See also: How‌ ‌to‌ ‌Buy‌ ‌GameStop‌ ‌(GME)‌ ‌Stock‌

Price Action: GameStop shares closed almost 6.1% lower on Thursday at $156.44, while Tesla shares closed 0.9% higher at $738.85.

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