That's what I was pointing out! Melvin did not close their shorts(as they said they did), they just got more rope from Citadel, and Citadel was willing to do just that knowing they can manipulate the market.
The narative of Melvin was "Citadel gave us 3 billion dollars, we closed our shorts at a loss, you won wsb, aren't you happy, you won, now leave us alone and stop buying".
Yes. Those other assets are presumably uncorrelated to this short position. If they were fire sold, depending on the assets, they could have gotten 20¢ or 30¢ on the dollar.
That discount gives Melvin the incentive to borrow, even at exorbitant rates. It protects the rest of the portfolio. With the bailout, the GameStop loss is capped and eaten by LPs. That sucks. But it sucks less than eating that loss and selling off the rest of the portfolio for peanuts.
> Melvin did not close their shorts(as they said they did)
You're alleging securities fraud. This may be the case! But we have zero evidence of it. And if Citadel and Point72 invested $3bn to aid and abet securities fraud, that would be quite stupid.
I stare at this crap all day and I've seen no indicator that Melvin has closed a large percentage of their position, let alone all of it. I will 100 percent allege securities fraud.
"[Melvin] was rescued with a $2.75 billion cash infusion from two other hedge fund titans, Steve Cohen and Ken Griffin. Cohen was Plotkin's former boss at SAC Capital Management. SAC shuttered after the firm pled guilty to insider trading and paid $1.3 billion in fines. Cohen was not personally charged. Griffin runs Citadel LLC ...
In exchange, Citadel and Point72, the successor firm to SAC, own an undisclosed stake in Melvin Capital Management."
And what is the likelyhood Melvin had such a significant proportion of their portfolio in such assets?
What? No it wouldn't.
Melvin faced cash calls. To raise cash fast they could (a) get it from their LPs (fat chance), (b) raise it from someone else or (c) sell other assets. The last option is a fire sale. You figure out what the fire sale discount would be, say it's 50%, and then use that to get (b).
I don't know what the terms of the bailout were. If I were structuring, I'd make it a loan with a super-high interest rate triply collateralized by their remaining assets. If they pay it back, I get the super high interest rate. If they default, I get the rest of their assets for 33¢ on the dollar. Between those two, the latter is frankly the higher-payoff scenario. (I would also require all short positions be closed out within N days, with the borrower's investors bearing the losses.)