The unbelievable market rally witnessed in GameStop's stock is working to unseemly financial gains for the company's CEO and other top honchos.
Redditors rallied to the help of the US videogame chain after it was targeted by short sellers earlier this year. The Reddit-fueled rally resulted at one in 2,500 percent share price increase.
Now, the Wall Street Journal has said that the chief executive and three other top managers of GameStop are leaving the company with a multi-million dollar bonanza. The value of the stock vested in those four executives is a whopping $290 million, the financial daily says.
Provisions Under Separation Agreements
The WSJ says that the executives are legally safe to walk out with the windfall earnings. Under the terms of the separation agreements between GameStop and the four executives, there are provisions that allow stock awarded during their tenure to vest when they leave, WSJ says.
These provisions allow Chief Executive Officer George Sherman and three other executives to sell their shares near GameStop's historically high levels.
At close on Friday, GameStop were at $151.18, way lower than the intraday high of $483 it hit in January but several-folds higher than the $19 it had ended the year with.
GameStop had earlier announced that CEO Sherman would exit the company by July 31. The WSJ report also sys that three of the four executives who are leaving with millions had joined the company only in 2019.
Though GameStop shares boomed insanely following the Reddit-fueled buying spree, the business reported net loss of $18.8 million in the third quarter of 2020. The losses for the the same period in 2019 stood at $83.4 million. In another important metric, the net sales shrunk $1 billion, compared to $1.4 billion in the previous year.
The Share Boom Story
The unseemly story of GameStop started when a group of Reddit users on a sub-Reddit called 'WallStreetBets' discovered that hedge funds including Melvin Capital and Citron Research held short positions â a trade in which you expect the stock to fall and benefit from the transaction â in GameStop and the popular brick and mortar video game store was about meet its financial end.
This prompted the Reddit group's 2-million strong army to bet against the Wall Street hedge fund and other short sellers of GameStop, pumping up the price of GameStop from $20 to more than $460. Besides GameStop, the social media users also drove up the price of other stocks including AMC Cinemas, Bed Bath & Beyond, Nokia etc in what is referred to as a "short squeeze."