As millions of determined amateurs take on Wall St, security worries are growing for some of the world’s wealthiest investors.
Hacking into an investment portfolio. Breaking into a Caribbean villa. Even — it has happened — kidnapping.
To the list of personal-security concerns for hedge fund magnates, add one more: short positions.
As millions of amateur investors, cheered on by social media, take on Wall Street, the uproar is changing the security calculus for some of the world’s wealthiest investors.
The level of vitriol has experts wondering if merely owning a certain stock, or betting against it, might pose new safety risks.
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“We now say to clients, ‘Tell us about your positions,'” said Insite Risk Management President Christopher Falkenberg, a former Secret Service special agent whose company designs and implements risk-management programmes for financial firms, funds and large nonprofits.
“We’ve never done that before. And we have clients with short positions who are saying to us, ‘We need a new security programme.”
Gabe Plotkin, portfolio manager of Melvin Capital Management which lost billions shorting GameStop, hired extra security.
Security worries for the rich are hardly new. One infamous example: Almost two decades ago, United States hedge fund billionaire Eddie Lampert was forced into the back seat of a Ford SUV and held hostage at a motel for 28 hours (he was released unharmed and the perpetrators were quickly caught).
Security for Gold Coast mansions, St Barts getaways, prized Picassos and more is, of course, routine, as are, in many cases, personal bodyguards. But the events of the past few weeks are about more than just money. It’s also an ideological battle against those seen as the Wall Street establishment.
Gabe Plotkin, whose Melvin Capital Management lost billions shorting GameStop, hired extra security for his family after he was the target of anti-Semitic slurs and other insults, according to people familiar with the matter.
Billionaire Steve Cohen said his family received personal threats, prompting him to cancel his Twitter account.
“The vitriol is more extreme, focusing not only on their stock positions but also their cultural positions,” Falkenberg said. “It becomes inherently more personal, and the trader becomes more of a personal enemy.”
The sheer volume of people posting online — the vast majority of whom merely type in rage and then move on — makes it more burdensome to monitor and evaluate risks, he said. And the threats may linger even after a firm or person exits a particular trade.
A volunteer army of smaller investors challenged big institutions who placed market bets that GameStop stock would fall.
The threats coincide with a general increase in hostility toward institutions, said Falkenberg, who drew parallels to the January 6 storming of the US Capitol by those who refused to accept that then-President Donald Trump had lost the election.
“Even if they unwound the trades, they represent the establishment,” he said. “This is going to change things for our clients.”
While spending on security is routine for hedge funds, much of their attention in the past had been focused on cybersecurity, Falkenberg said. But even before the events of the past month, his clients had begun to bulk up their physical defences at home, where they’ve been spending more time than ever because of the pandemic.
The online zealotry also prompted one of Wall Street’s most venerated contrarians, Citron Research founder Andrew Left, to alter course. He announced that his firm would no longer publish short-selling research after an enraged mob of investors threatened him and his family.
Citron had previously suspended a live-stream event because too many people were hacking its Twitter account.
“I’ve never seen such an exchange of ideas of people so angry about someone joining the other side of a trade,” Left said in a video.
His capitulation prompted discussions in the short-selling world about whether there was still room for them to publish reports criticising companies.
Still, not everyone is giving up. On Thursday, Clover Health Investments, the health insurer backed by Chamath Palihapitiya, tumbled after Hindenburg Research published a report that said the firm misled investors.
Clover said on Friday that it received a notice of investigation from the US Securities and Exchange Commission. The company believes the inquiry is based on Hindenburg’s report, which is “rife with ad-hominem attacks, sweeping inaccuracies and gross mischaracterizations,” Clover said in a filing.
Short sellers have long been the subject of opposition from those who disagree. Some companies they targeted used scare tactics or sought to discredit them through teams of lawyers, PR professionals or private investigators.
Some short sellers, who asked not to be identified because they feared for their safety, described previous death threats, attempts to hack their phones, people trying to enter their offices and obscene messages sent to spouses.
But sometimes it goes further. In 2019, the Financial Times reported how investors who bet against German payments firm Wirecard were under surveillance, including from a group led by a former Libyan intelligence chief.
Matthew Earl, an early critic of Wirecard, said a suspicious car once followed his young son and nanny and took pictures of them, and that he was being watched from vehicles parked outside his home — once they even accosted him at his front door.
“It was a lurking constant threat,” he said. “It’s very traumatic, and psychologically it’s very difficult to deal with.”