Who is Jason Mudrick? Hedge fund uses 'meme stock' tactic to make $25M in hours with AMC shares
The 'unusual' move by Mudrick Capital indicated Wall Street is getting bolder about exploiting a trading frenzy that has fueled social media rallies in fringe stocks
Wall Street giants are making a foray into the "meme stock" market after reports that a hedge fund bought 8.5 million shares of AMC Entertainment Holdings on Tuesday, June 1, and quickly sold its stake to make a $25 million profit. The "unusual" but "significant" move by Mudrick Capital Management indicated that Wall Street is getting bolder about exploiting a trading frenzy that has fueled social media rallies in fringe stocks favored by "retail investors" who make small scale trades.
AMC issued 8.5 million shares to Mudrick in its latest share sale this year, the cinema chain revealed Tuesday as it cashed in on a considerable jump in its stock in 2021. But Mudrik went on to sell its AMC stake at a $25 million profit saying the shares were overvalued, a source with knowledge of the transaction told Reuters on Tuesday.
According to the publication, AMC has become a "meme stock" of late, alongside game retailer GameStop, after being promoted on forums including the infamous Reddit page r/WallStreetBets. GameStop soared to a whopping 1,600 percent in January after being pumped by small-scale speculators. These investors purchased the stock as a rebuke to large hedge funds that had bet massively against it. As collateral damage small investors also lost hundreds of thousands of dollars after the GameStop bubble burst.
That said, Tuesday's move marked a quantum shift in the trend as it involved a financial giant and not an individual trader. Mudrick Capital Management's Wikipedia appeared to have been hacked Tuesday, possibly in retaliation for the AMC move. It stated that the company was "an investment firm specializing in losing money" and that it was "located in New York City and, as of June 2021, managed approximately $0.0 in assets. Mostly due to bad decision-making regarding AMC," per Reuters.
Michael O'Rourke, the chief market strategist at Jones Trading, told Reuters that unbridled cash injections from the Federal Reserve had "created an almost video game-like atmosphere in the stock market and investing. There's money flowing everywhere and this is a great illustration of that."
AMC's stock closed at nearly 23 percent at $37.68, sparking a rally in several other meme stocks. The company's stock is up more than 1,400 percent so far this year after becoming part of a meme stock rally that has gained steam in recent weeks. It's worth noting that AMC has raised a staggering $1.35 billion through share sales since December 2020.
Who is Jason Mudrick?
Born on February 23, 1975, Jason Mudrick obtained business degrees from Harvard Law School and the University of Chicago. He founded London and New York-based Mudrick Capital in 2009 after leaving investment firm Contrarian Capital Management, where he specialized in distressed investing for eight years, per the hedge fund's website. Now, Mudrick's company focuses on long and short investments in distressed credit.
One US-based hedge fund said that firms like Mudrick will sometimes take down a share sale and flip it as soon as possible if no lockup provision blocks such a move temporarily. "I don't know if it happens every day, but it's certainly a common practice," Mike Hickey, an analyst at The Benchmark Company, told Reuters. According to him, the share sale showed that AMC is "obviously forward-leaning here and trying to be opportunistic."
"There's concern on dilution and there's concern on leverage but if you can raise money, you'd be a fool not to," Hickey added.