Melvin's Plotkin says fund follows rules; GameStop frenzy "humbled" him

By Svea Herbst-Bayliss

BOSTON (Reuters) - Gabriel Plotkin will on Thursday explain his hedge fund's massive losses in the GameStop trading frenzy, and he plans to tell U.S. lawmakers that Melvin Capital Management follows securities laws, does not manipulate stocks and conducts extensive research before making bets.

Plotkin, long one of the hedge fund industry's most admired traders, became one of the financial industry's most vilified players last month when an army of retail investors pushed the video retailer's stock much higher after his hedge fund bet that it would fall.

Plotkin will deliver prepared remarks and answer questions for the U.S. House of Representatives' Committee on Financial Services, giving his most detailed public description yet of events that unnerved markets for days.

In the prepared testimony released on Wednesday, Plotkin said his firm, named for his grandfather, is paid to take a view on a company's future. Corporations that "create jobs, grow the economy, and develop new products for consumers," are added to the portfolio as long positions while others with less certain business models or outlooks might be shorted, or bet against.

Melvin Capital had been short GameStop, which sells new and used video games in stores, for six years, believing its business model was being "overtaken by digital downloads through the internet," Plotkin said. He closed the position in January.

He said he follows all rules for shorting and was not part of "any effort to artificially depress or manipulate downward the price of a stock."

When GameStop's share price marched higher from $17 to a peak of $483, Melvin Capital found itself in trouble so deep that the firm had to cover its short positions and sell other parts of the portfolio to limit losses.

In four weeks in January, the fund lost 53%, roughly the same amount it had earned in the entire year of 2020. Plotkin's mentor Steven A. Cohen and Kenneth Griffin, who runs hedge fund Citadel LLC, gave Melvin Capital a $2.75 billion dollar lifeline, Plotkin said, although he insisted the fund was not "bailed out" and did not seek "a cash infusion."

Plotkin, part owner of the Charlotte Hornets professional basketball team, took a contrite tone in his statement, saying it is his duty and job to earn back the money he lost for the college endowments, charitable foundations and retirees who entrusted him to oversee their nest eggs.

"I am personally humbled by what happened in January," Plotkin said, adding "Investors in Melvin suffered significant losses. It is now our job to earn it back."

(Reporting by Svea Herbst-Bayliss; editing by Lauren LaCapra and David Gregorio)

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