Crank up your HBOMax app, or borrow a friends account and watch “Gaming Wall St“, if you need background on the reddit by the name of wallstreetbets that has gone viral among common folks who dabble in stock investments. Whether you agree or disagree with the concept of people banding together to share trade information and investing as a group, or not, its happening all over the world. For example, for people interested in trading in FOREX markets, there are paid subscriptions where people join conference lines and invest in calls or puts against currency pairs, real time, based on an expert’s educated guess shared on the conference line. Its foundational that when you plan to invest in anything, you want to be able to weigh the risks and potential gains. In a society of impatience, people are willing to lean on the expertise and research of trusted sources, even if those sources are sources by association. Kindergarten games teach us, the further away from a personal connection to the true source, the less likely your information is credible, yet the daring members of wallstreetbets stay the course and sometimes risk it all on opportunities to win big. The publicly traded security Meta Materials Preferred Shares (MMTLP) had a unique and tremendous upside, because the company submitted documentation, signaling they were going PRIVATE and giving trade of the security a hard stop date of 12/12/2022. This setup the uncommon environment for an inevitable short squeeze. However, to the surprise of many investors, MMTLP wasn’t available for trade at all in the pivotal last days of trade. I guess I have to give you a little back story on MMTLP before I get into winners and losers.

Torch Light (NASDAQ:TRCH) was a stock that some in the wallstreetbets group speculated would grow massively last year. The company was acquired by Metamaterial Inc, and the symbol was converted to MMAT and a number of MMTLP preferred shares were awarded to any current shareholders of TRCH in the process. Anyone still holding these shares or still paying attention learned that, this year, the company filed documents with the proper trade authorities, committing to going PRIVATE. When a publicly traded company decides to spinoff and go private, all investors must close positions before the deadline given, or the respective brokerages will have to forcefully close the positions themselves to balance their books. This isn’t unusual, MMTLP is not the first company to spinoff, and they won’t be the last.

What I found to be blog worthy about this particular situation is the unequal treatment of individual investors in comparison to hedge funds. After word was given that MMTLP would be going private, hedge funds were given continued authorization to short sell this security. When you short a stock, you are basically loaned someone else’s shares to sell immediately receiving the cash, with hopes and expectation that the price of the stock will fall. Then you can buy back the loaned amount of shares and keep the difference. How hedge funds were allowed to do this, while at the same time, some brokerages weren’t allowing MMTLP to be purchased at all by the public is perplexing. According to some in the wallstreetbets group who claim to have credible sources, the security was shorted well beyond the amount of shares that exist. When a company is heavily shorted, there is a simulation of low investor confidence. The price of the stock dips because so many shares are being sold in a short amount of time. Ask yourself why would a hedge fund be allowed to do such a complex transaction, if the average Joe couldn’t even do simple transactions like buying on the same symbol?

With the hard deadline for the MMTLP spinoff approaching, countless shares of the security would need to be bought back by the hedge funds to close their short positions, which was set to send the price of the security soaring, or as wallstreetbets members say, “to the moon”. FINRA, “the powers that be”, decided to do what some unpopular referees do in American football. In the NFL, if a player fumbles and the opposing team picks up the ball, and runs in for a touchdown, the play can be reviewed, and depending on the video review, the defensive team can be credited for 6 points, or the ball can be placed back at the yard-line of the fumble if the offensive player was found to be “down by contact” post-review. In hindsight, they can get the RIGHT call and proper outcome with the help of review. However, if the referee whistles the play dead, the defensive team never has a chance to run the ball in for the touchdown, and the best possible outcome for the defensive team is never realized. Even if the defensive team’s coach challenges the call and it turns out that the offensive player really fumbled the ball, the defensive team never gets that moment of open play to score again. In a situation where there was a clear path to the end-zone, defensive teams often feel like losers, even if they are awarded possession, because of the opportunity to score they were robbed of.

FINRA whistled the play dead. Instead of allowing the living breathing markets to balance themselves, and the chips to fall where they may, the markets were trifled with by FINRA, and MMTLP was administratively and prematurely taken off the market on 12/09, days before the deadline. Investors never got to see just how many shares hedge funds needed to buy to close their short positions, and never got to see what that demand would have done to the price of MMTLP. The settlement of the shorts was handled under the table and off the books, mafia style. A hedge fund would have had to close its short positions and depending on how reckless the hedge fund had gotten with MMTLP shorts, the event may have wiped them out completely, causing any other stocks to dip, if in the proverbial blast radius that is said hedge fund’s portfolio. As the price of MMTLP went up, investors would have had the opportunity to sell their shares and reap the benefits of stock purchases at prices that some had waited over a year to see. Reports of suicide attempts and devastation for the people who were deemed less important than hedge funds by FINRA have rang out all over twitter and reddit. Are some hedge funds “too big to fail”? If so, shouldn’t the risks they’re allowed to take be regulated?

In this NFL analogy, FINRA is the referee, hedge funds are the offensive team, the winners, who fumbled the ball, and everyday investors, like the people in the wallstreetbets community, are the defensive team, the losers, who recovered the ball and looked to score before the play was blown dead. The unknown actor is the defensive team’s coach. Who challenges the ruling on the field? The damages are unknown since trade was stopped, but it is no question the ball was in the hands of the real shareholders of MMTLP, and they deserve more than Next Bridge Hydrocarbons‘ private stock. I hope to God this situation results in real change, new regulations on hedge funds and FINRA, and less market manipulation in the future. It stinks of corruption, and gives me little faith in the concept of the market being free flowing and administered ethically. At time of posting, this was the most recent update I received regarding the matter, and it leaves a sliver of hope for MMTLP shareholders. I hope things work out in their favor.