AMC Theatres warnings to investors that they could lose their shirts in the giant theater chain’s latest stock sale, or CEO Adam Aron appearing to have gone without pants during a recent webcast has failed to halt a steep rise in the company’s stock price.
On Monday, shares in parent AMC Entertainment Holdings were trading up $6.04, or just over 12 percent, to $53.93 — after opening the day up 20 percent in value. The cinema chain has seen its share price dramatically rise and fall due to casual traders encouraged by the online WallStreetBets group on Reddit to buy up and meme AMC’s stock.
On June 3, AMC Theatres filed to potentially sell 11.55 million shares on the back of steep rises in its stock price, while in an SEC filing also warning investors: “We caution you against investing in our class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”
Also on June 3, Aron appeared as part of a virtual interview on the popular YouTube channel Trey’s Trades and at one point appeared to show he wasn’t wearing any pants when his web camera briefly made an abrupt movement. That incident quickly had #NakedShorting trending on Twitter among online traders apparently believing Aron had sent a hidden message about hitting back at short sellers on Wall Street.
AMC Entertainment has been the target of hedge funds that borrowed shares of stock and then sold them, having expected the price per share to fall before they buy back the shares at a cheaper price, return them to the lender and pocket the difference. But in a massive short squeeze, rebel online retail traders have bought up stock in AMC Entertainment and dramatically drove up the prices.
And that has forced hedge funds to buy back stock in AMC at a higher-than-expected price and lose money in the process. But on Monday, the U.S. Securities and Exchange Commission warned it is investigating the possible illegal practice of naked shorting, where traders have not yet found or identified shares to deliver.
“SEC staff continues to monitor the market in light of the ongoing volatility in certain stocks to determine if there have been any disruptions of the market, manipulative trading, or other misconduct. In addition, we will act to protect retail investors if violations of federal securities laws are found,” an SEC spokesperson said in a statement obtained by The Hollywood Reporter.
Meanwhile, market analysts see AMC’s post-pandemic strategy of share sales amid stock surges and encouraging retail trading of company stock paying off as moviegoers return to the multiplex.
“In addition to our continued expectation that AMC could improve its balance sheet and future cash flows through debt repurchases/pay-downs, we could now see either acquisitions of smaller exhibitor chains or the takeover of leases from troubled chains (that should avoid any DOJ market share review issues),” B Riley Securities analyst Eric Wold said in a June 7 investors note.