• Citadel's flagship Wellington fund is up more than 16% through July, and its standalone Global Fixed Income fund is up nearly 12% over the same time frame, sources tell Business Insider.
• Ken Griffin's $34 billion firm has five different strategies feeding into Wellington, and all five are positive for the year when the average hedge fund has lost money. Two strategies, sources say, have had some of their best years ever in 2020.
• Citadel has continued to recruit top talent across different parts of its business; the firm is adding Two Sigma executive Andrew Janian to its tech team next year, and former Goldman Sachs partner David Casner started in June on the credit team.
• Visit Business Insider's homepage for more stories.

In a year where the markets make no sense and multi-billion-dollar funds close, Citadel is still pumping out returns.

The $34 billion firm is up more than 16% in its flagship Wellington Fund for the year through July, while its standalone Global Fixed Income fund is up nearly 12% over the same stretch, a source familiar with the firm told Business Insider. In July, Wellington was up 2.7% and Global Fixed Income returned 2.1%.  

The five strategies that feed into Wellington — equities, fixed income and macro, global credit, commodities, and quant — are all positive for the year. 

The firm's global quantitative strategies unit has had its best start to a year in its history, while the global credit unit, which is led by former Goldman Sachs partner Pablo Salame, has had its most profitable start to a year in more than a decade, the source said. 

This is a departure from the realities for many firms in the $3 trillion hedge-fund space, where quants have struggled to rebound from a volatile March, and credit funds have battled margin calls and low-interest rates. The average hedge fund, according to Hedge Fund Research, is flat for the year.

Citadel's outpaced most of its multi-strategy peers so far this year. Steve Cohen's Point72 is up 7% through July, while Izzy Englander's Millennium is up 12%, according to Bloomberg. ExodusPoint, run by Michael Gelband, has returned 8.7% this year, and start-up Cinctive Capital is up 7%. 

The leader in multi-strategy world has been Balyasny's Atlas Enhanced fund, which is up 20.5%; the firm has continued its hot start to the year. 

Citadel's credit unit is also in the process of developing a new strategy. David Casner, a former Goldman partner who was the head of U.S. equity volatility trading and global co-head of equity flow derivatives trading at the bank, started in June and is building out an equity derivatives strategy under Salame. Casner is also in charge of the firm's convertible arbitrage strategy. 

See more: Billionaire Ken Griffin's Citadel has a sprawling alumni network of more than 80 hedge funds. Take a look at our exclusive list.

The firm's been recruiting across all sections of its business, poaching a pair of big names from rival funds recently. Andrew Janian, a top Two Sigma tech executive, will start at the firm next year, while Isaac Chang, formerly AQR's head of trading, is joining in September as Griffin's first-ever head of execution trading for fixed income.

Griffin meanwhile has named Jonas Diedrich, who started as an analyst at the Chicago-based firm more than a decade ago, to a new role as the European head of Global Equities, which is run by Justin Lubell, who Griffin recruited from rival fund Point72 last year.

Citadel declined to comment on performance.

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• A top lieutenant of billionaire Lee Ainslie is joining Ken Griffin's Citadel in September, sources tell Business Insider.
• Ben Bologna, who was named to Forbes' 30 under 30 finance list in 2018, is joining Citadel's Ashler Capital, one of the firm's three stock-picking units.
• Bologna was at Maverick for eight years, running the team in charge of investing in consumer stocks.
• Visit Business Insider's homepage for more stories.

A rising star at Maverick Capital has been poached by billionaire Ken Griffin.

Ben Bologna, the head of the consumer sector for billionaire Lee Ainslie's Maverick, is joining $34 billion Citadel's Ashler Capital, one of the three stock-picking units at Griffin's Citadel, Griffin's firm confirmed to Business Insider.

Bologna, who was also a managing director for Maverick, will be a consumer-sector portfolio manager at Ashler in September. Maverick declined to comment. Bologna did not respond to a request for comment. 

See more: $34 billion Citadel is dominating 2020. Here's a look at how it's outperforming its rivals — and the hedge fund's plan for its latest Goldman hire.

Bologna was a member of Forbes' 30 under 30 finance list in 2018, and the magazine wrote that the then-29-year-old "oversees more than $1 billion" and was on the board of FreshDirect, which Maverick invested in. According to his LinkedIn, Bologna worked at Maverick for eight years, and started his career at investment bank Greenhill & Co.  

Citadel's stock-picking units — which include Surveyor Capital and Global Equities along with Ashler — are positive for the year through July, but have had their share of personnel changes. Global Equities cut portfolio managers Chris Connor, Chip Fortson, Tio Charbaghi, and Steve Bergman in April, Bloomberg reported.  

Hedge Fund Alert meanwhile reported that Neil Chudgar and Matt Wienkes quit Global Equities in April as well.

There have been more than a dozen portfolio manager additions to the equities units this year including former Third Point researcher Josh Klaczek to Global Equities, former Sculptor financials sector head Oliver Sigalow to Ashler, and former Viking Global analyst Rich Falk-Wallace to Surveyor. 

The firm also recently promoted Jonas Diedrich, a longtime Citadel analyst and portfolio manager, to the head of Global Equities Europe — a new role for Griffin's fund. 

For the year through July, Citadel's flagship Wellington fund is up more than 16%. The equity unit is one of five strategies that feeds into the Wellington fund. The four other strategies, fixed income and macro, global credit, commodities, and quant are also positive for the year. 

SEE ALSO: Billionaire Ken Griffin's Citadel has a sprawling alumni network of more than 80 hedge funds. Take a look at our exclusive list.

SEE ALSO: Hedge funds are winning the war for talent against Amazon and Facebook. 3 charts show which firms are poaching the most top data scientists and engineers from Big Tech.

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• As hedge funds have become sophisticated, their talent needs have evolved — and top managers now are searching out people with engineering abilities or data science skills.
• This has put managers in direct competition with big tech firms, and a years-long battle over talent has ensued. 
• Hedge funds like Two Sigma, Citadel, and Bridgewater have managed to bring in more people from big tech firms over the last 10 years than they have lost.
• Amazon and Microsoft have seen hundreds of people leave their organizations for hedge funds.
• Visit Business Insider's homepage for more stories.

Hedge funds are used to having to fight with each other for top talent. But they've never had to compete with a whole different industry like they are now.

Top tech companies and the savviest hedge funds in the world both need employees with specific skills to keep up — and keep ahead — in a rapidly changing world. Data scientists, coders, engineers, systems managers — while those skills might seem to make most sense in Silicon Valley, Wall Street has been working for years to recruit these people. Their efforts are starting to pay off.

New data from Revelio Labs, an alternative-data provider that reviews millions of public employment records — from LinkedIn to immigration filings — with the goal of creating "the world's first universal HR database," show hedge funds have been recruiting hundreds of people from top tech companies annually since 2015. In 2018 alone, more than 270 people went from a tech firm to a hedge fund. (Story continues below graphic)

Anecdotally, there are examples as well, especially from the two hedge funds that have recruited the most from tech companies over the last decade, Two Sigma and Citadel. Two Sigma's former chief technology officer Alfred Spector was a longtime Google and IBM executive before joining the hedge fund, and Citadel's recent tech team buildout includes Matthew Bruce, who had been head of search at Facebook's Instagram. 

See more: Wall Street's battle for data-science talent has gone next-level as Silicon Valley makes more East Coast hires and other industries get hip to data — here's how firms are fighting back

A source familiar with Ray Dalio's Bridgewater says the firm has more than 150 technologists since 2017, and DE Shaw describes itself on its website as a "global investment and technology development firm." (Story continues below graphic)

Naturally, top tech firms have not taken this and rolled over. While massive companies like Amazon and Google have had hundreds of employees leave for hedge fund suitors, IBM has added nearly 200 former hedge-fund employees over the past decade — and lost just 77 in the same time. 

The firms mentioned either declined to comment or did not return requests for comment.

Read more:

• $60 billion quant fund Two Sigma just hired Goldman Sachs' first-ever chief data officer to lead its massive tech team
• Citadel just poached Two Sigma's data chief for its tech team — and it's the latest sign of how aggressively the $30 billion firm is pursuing top talent from Wall Street and Silicon Valley
• 'I'd rather turn them into robo cops': Execs from Man Group, Bridgewater, and Schonfeld explain how they're trying to blend humans and machines

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Home flipping and reselling company Opendoor announced today that it has hired Daniel Morillo, a current Citadel and former BlackRock executive, as its chief investment officer.

Morillo is currently a managing director and head of equity quantitative research at $34 billion Citadel, where he runs the hedge fund firm's equity research and analytics. A spokesperson for Citadel told Business Insider that Morillo would leave the firm at year-end, and a spokesperson for Opendoor told Business Insider he would join the firm by Jan. 1st, 2021, at the latest.  

He will become Opendoor's first-ever CIO, leading the firm's pricing analytics and data science efforts. He is joining CEO Eric Wu, chief product officer Tom Willerer, CFO Carrie Wheeler, and CTO Ian Wong on the firm's executive team as they look to close a SPAC deal that will bring Opendoor public.

Read more:Here's how Opendoor is pitching a path to profitability as it gears up to go public via a SPAC

iBuyers make money by buying homes, doing slight renovations to them, and then reselling them, charging a fee to the home seller and attempting to sell at a profit. The companies have relatively small margins, according to one analysis the companies make 1.3% per transaction, and look to use data analysis to extract higher margins out of each sale. 

Morillo brings 20 years of data and risk management experience. He's spent the last five years at Citadel, and also had an almost 10-year tenure at BlackRock, serving as the global head of investment research for the firm's ETF brand iShares and as the co-head of BlackRock's model and portfolio solutions group. 

The news comes a month after Opendoor announced plans to merge with Social Capital Hedosophia Holdings Corp II, a SPAC led by venture-capitalist Chamath Palihapitiya. The deal values Opendoor at $4.8 billion dollars, and the company expects to raise $1 billion.

Read more: Citadel is dominating 2020. Here's a look at how it's outperforming its rivals — and the hedge fund's plan for its latest Goldman hire.

Special-purpose acquisition companies — aka "blank-check" companies — are having a moment on Wall Street. This year has seen 159 SPAC IPOs, almost triple the amount for all of 2019 according to SPAC database Spacinsider.com. 

While Opendoor sold 18,799 houses in 2019, an increase of 152% from the 7,470 houses it sold in 2018, the service is not profitable. The firm's adjusted EBITDA was negative $218 million in 2019, according to a presentation in filings about the SPAC deal. Home-flipping can be a capital-intensive business, and that measure excludes factors including interest, taxes, depreciation, and amortization. 

Read more about the SPAC frenzy: Meet 16 bankers, lawyers, and capital providers helping engineer a $40 billion blank-check craze that's fast-tracking companies to public markets

SEE ALSO: SoftBank-backed Opendoor lost $339 million in 2019. Here's how it's pitching a path to profits as it gears up to go public via a SPAC.

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SEE ALSO: Meet 16 bankers, lawyers, and capital providers helping engineer a $40 billion blank-check craze that's fast-tracking companies to public markets

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Billionaire Ken Griffin describes his younger self as being "woefully short on experience and expertise" when he started Citadel 30 years ago with roughly $5 million in capital.

But with the firm hitting its three-decade anniversary — surviving several market crashes, presidential elections, and now a pandemic — Griffin told employees in a memo sent yesterday that "there was one truth I held dear" back in 1990 that helped get the firm from where it was then to the $35 billion behemoth it is today.

"I knew from the beginning it would take a team of the best and brightest — truly extraordinary colleagues with exceptional intellect, passion and creativity — to succeed," he wrote.

"What I didn't appreciate was the incredible power of this belief — that over the years, the collective talents and ambitions of our team would change the world of finance."

See more: Billionaire Ken Griffin's Citadel has a sprawling alumni network of more than 80 hedge funds. Take a look at our exclusive list.

Citadel, which was partially seeded by Griffin's mentor Frank Meyer, the founder of Glenwood Capital Investments, has already cemented its name alongside the most successful hedge funds of all time, like Julian Robertson's Tiger Management and George Soros' eponymous firm. LCH Investments has put Citadel as the third-most profitable hedge fund of all time behind Soros and Ray Dalio's Bridgewater, and found that, as of the end of last year, Citadel has returned a net of $35.6 billion to investors over its history. 

Citadel Securities, the separate market-making business, is one of the top players in its space as well, and was started in 2002. 

This year, despite market volatility from the ongoing pandemic and the US presidential race, the firm's 30-year-old flagship Wellington is up 20.1% through October after gaining 1.1% last month. As previously reported, several segments of the firm had their best-ever starts to the year, including the quantitative strategies unit. On average, the fund has made 18.9% each year since inception. 

The firm's biggest stumble came in 2008, when Citadel's funds lost roughly half of their value. Griffin told the Wall Street Journal in 2015 that it took three years and 17 days to make back the losses. 

Read the full memo Griffin sent employees here: 

Dear Colleagues,

Thank you for helping to make Citadel's 30th anniversary a reality.

I founded Citadel three decades ago with a little less than $5 million in investment capital from a handful of supportive investors. A 22 year-old entrepreneur running a startup hedge fund with just two other colleagues, I was woefully short on experience and expertise. But there was one truth I held dear. I knew from the beginning it would take a team of the best and brightest – truly extraordinary colleagues with exceptional intellect, passion and creativity – to succeed. What I didn't appreciate was the incredible power of this belief – that over the years, the collective talents and ambitions of our team would change the world of finance.

Every day, I am grateful for the privilege of working with the greatest colleagues in finance. Thank you for expanding my vision for Citadel beyond anything I could have imagined. I am so proud of what we have accomplished together.

Our 30th anniversary is a significant milestone. But, as you know, we seldom dwell in the past. While it is important to celebrate our history and all those who have helped shape our success, our sights are set firmly on our future. Whether you have been on this journey for decades or you've just joined us, it is the chapters we have yet to write together that are most exciting.

Here's to what's next.

SEE ALSO: Billionaire Citadel founder Ken Griffin explains why he modeled his firm after Goldman Sachs' analyst program — and says future leaders can't expect a 9-to-5 lifestyle and a 'great weekend'

SEE ALSO: Billionaire Ken Griffin's Citadel has a sprawling alumni network of more than 80 hedge funds. Take a look at our exclusive list.

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For many Wall Street aspirants, a career at a top hedge fund is the holy grail. For those who succeed, compensation has the potential to eclipse nearly any other profession in the country — let alone finance. 

The hedge fund industry has transformed over the past 15 years. Whereas fundamental investment strategies once ruled the day, increasingly the flow of talent and capital is shifting toward firms with sophisticated quantitative strategies and data-mining operations. 

Today, most of the largest and most successful funds have significant quant operations, if not a complete emphasis on quantitative investing. Firms like AQR, Bridgewater, Citadel, D.E. Shaw, Point72, and Two Sigma vigorously compete for the most promising young financial minds — and they pay hefty sums to lure in top candidates. 

Read more:A Harvard undergrad explains how she extended her internship with $58 billion Two Sigma in lieu of spending the semester taking virtual classes

Bonuses play an outsized role in overall comp at most funds, especially in investment roles, but base salaries are still substantial and figure prominently especially at the more junior levels, where employees typically have a less direct impact on overall returns. 

Some of the brightest minds in systematic trading and quantitative research were born and educated outside the US, and some funds stock their US rosters with foreign labor. When US companies file paperwork for visas on behalf of current or prospective foreign workers, they're required to say how much base compensation the workers are offered. And every year, the Office of Foreign Labor Certification discloses this salary data in an enormous dataset.

Business Insider analyzed the agency's disclosure data from the past three years for permanent and temporary foreign workers to shed light on what these hedge funds paid for talent. 

SUBSCRIBE NOW TO READ THE FULL STORY: How much engineers and researchers are paid at AQR, Bridgewater, Citadel, D.E. Shaw, Point72, and Two Sigma

SEE ALSO: Billionaire Citadel founder Ken Griffin explains why he modeled his firm after Goldman Sachs' analyst program — and says future leaders can't expect a 9-to-5 lifestyle and a 'great weekend'

SEE ALSO: How $34 billion hedge fund Citadel rented out a five-star resort for a month to pull off an in-person summer internship 'bubble' for more than 100 college students

SEE ALSO: The head of professional development at Steve Cohen's Point72 lays out how to climb from fresh college grad to portfolio manager at the $16.3 billion hedge fund firm

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One of Canada's largest hedge funds has added a new head of global credit.

Marina Lutova Meyers is currently running the global credit strategy for the $5.3 billion multi-strategy manager Polar Asset Management, according to her LinkedIn, as of November. 

Meyers, who sources say was considering starting a fund of her own, left Ken Griffin's Citadel in September, according to a story from Bloomberg. She had been a fundamental relative-value portfolio manager on the $35 billion manager's global credit team for nearly three years.

Prior to joining Citadel, Meyers worked for Andrew Feldstein's BlueMountain Capital, as a partner and portfolio manager. BlueMountain, which was known for its credit prowess, shut down its hedge fund offerings last year to focus on the collateralized loan obligation market after an attempt to break into the equities space. 

Prior to BlueMountain, Meyers also worked for a year at Ray Dalio's Bridgewater as a senior investment associate and at consulting giant McKinsey. 

See more: The asset manager of the future looks like a consultant. Here's how firms like BlackRock, PIMCO, and Invesco are preparing for it.

Meyers and Citadel declined to comment while Polar did not respond to requests for comment.

Polar's website states that it has eight "strategy leads" which Meyers says she is one of on her LinkedIn; the firm's multistrategy fund is overseen by CIO and co-founder Paul Sabourin. In total, there are 11 strategies and three funds at Polar, with 37 investment professionals. 

Had Meyers started her own fund, she would have been one of a few women with her own firm in the male-dominated space. Last year, Samantha Greenberg closed her Margate Capital to join Citadel's Ashler Capital unit, and one of the most powerful women in finance — former Bridgewater co-CEO Eileen Murray — left the world's biggest hedge fund this spring and recently settled with her old firm over a pay dispute of $100 million in compensation. 

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A recent EY survey of the alternative investment space found that nine out of every ten hedge funds have investment teams that are only 30% female or less. More than half of respondents said that women make up less than 10% of their investment teams. 

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SEE ALSO: $42 billion Tiger Global is trying to diversify its staff — and its hired a McKinsey recruiter to help it look beyond 'a limited number of New York investment firms' for talent

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The billionaire hedge-fund executive Ken Griffin is offloading the two Miami Beach penthouses that he bought five years ago at a more than 20% loss, The Real Deal reported.

Griffin recently sold the larger penthouse for $35 million, and the smaller unit — which is asking $12.5 million— is in contract for an unknown price, The Real Deal said, citing a multiple-listing service. Even if the smaller condo sells at its asking price, both sales would total $47.5 million — about 20% less than the $60 million Griffin paid for the units in 2015.

Griffin, the founder and CEO of the Chicago-based hedge fund Citadel, has a net worth of about $21 billion, according to Bloomberg's Billionaire Index.

The two penthouses are in the ultra-exclusive Faena House development in Miami Beach, where residents are offered lavish perks, including a valet and private concierge service, an in-house spa and fitness center, a private beach club with full cabana service, and two swimming pools.

Griffin isn't the only billionaire in the building. Other known Faena House homeowners include former Goldman Sachs CEO Lloyd Blankfein, the hedge-fund manager Jamie Dinan (who's worth $2 billion), former US Ambassador Paul Cejas, the British hedge-fund founder Alan Howard (worth $1.7 billion), and Thomas Stern, the managing director of Chieftain Capital Management.

Griffin bought the two Faena House penthouses — the larger of which occupies the entire top floor of the exclusive Faena House condo building — in 2015, when he was finalizing his high-profile divorce. At the time, the $60 million transaction was considered the most expensive home sale in South Florida, The Real Deal said.

Together, the two glass-walled condos — which Griffin never combined, according to the Real Deal — occupy multiple floors of Faena House, with 12,516 square feet of living space. Accessible only by a private elevator, the larger penthouse comes with a 70-foot infinity pool out on its 9,900-square-foot Brazilian-style terrace.

A representative for Griffin did not immediately respond to Business Insider's request for comment. 

A yearslong luxury-real-estate buying spree

In recent years, Griffin has been snapping up luxury homes left and right, shattering records along the way. 

Since 2012, the hedge-fund CEO has bought nearly $250 million of real estate in the Billionaires Row area of Palm Beach, Florida. He has plans to build a massive beachfront mansion on the combined properties, The Wall Street Journal reported.

In November 2018, Griffin bought four floors of the Chicago condo building No. 9 Walton for $58.75 million, which still holds the record for the most expensive home sale in Chicago.

And in January 2019, the billionaire bought a mansion in London that's only half a mile from Buckingham Palace for roughly $122 million. That same month, he paid $238 million for a penthouse spread in Manhattan's 220 Central Park South, breaking the record for the most expensive US home sale ever. Later that year, he picked up two more units in the building for nearly $4 million.

And in February, Griffin bought a sprawling compound on "Billionaire Lane" in Southampton, New York, from the fashion designer Calvin Klein in an off-market deal.

Griffin picked up yet another piece of real estate in August, when he dropped $37 million on two empty lots on the ritzy Star Island in Florida.

The real-estate agents representing Griffin in the sale, Oren Alexander of Douglas Elliman and Ryan Mendell of Maxwell E. Realty, did not immediately respond to Business Insider's request for comment. 

SEE ALSO: A look inside Ken Griffin's massive luxury real-estate portfolio, from a $238 million NYC penthouse to homes in Palm Beach, London, and the Hamptons

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Demand from big-name tech and finance firms looking for pricey, newly built office space in South Florida is igniting a commercial real estate boom.

As major companies, C-suite executives, and startup founders migrate to the Sunshine State at an accelerated pace — thanks to the migration of businesses away from urban centers like New York City set off by the coronavirus pandemic as well as alluring tax incentives — competition to lease prime office space is growing fierce.

Out-of-state companies are close to inking deals for prime office space in Miami and West Palm Beach, lending more support to the claims that Florida is ascending to rival Wall Street.

Insider has learned:

• Seattle-based Microsoft is in advanced negotiations to take up 30,000 square feet at a brand-new office building in the Downtown Miami neighborhood of Brickell called 830 Brickell Plaza.
• Hedge fund giant Citadel has shortlisted 830 Brickell Plaza in its search for an office of up to 80,000 square feet in Miami. Its head office sits in Chicago.
• Law firm Baker McKenzie, also headquartered in Chicago, is also said to be in talks for space at 830 Brickell Plaza.
• Elliott Management is close to inking a roughly 40,000 square foot lease at at 360 Rosemary Avenue in West Palm Beach, a new office building from mega-developer Related.
• Maryland-based mortgage company New Day USA is finalizing a lease for about 50,000 square feet at 360 Rosemary.
• Local private equity firm H.I.G. Capital recently signed on for a little over 20,000 square feet of office space at The Plaza, a mixed-use development in the Miami neighborhood of Coral Gables.

'The overall activity in the market is beyond anything I have ever seen'

Miami has seen only a handful of new office projects in recent years.

The raft of big-name tenants clamoring to take space at 830 Brickell Plaza, a 55-story, under-construction office tower that is scheduled for completion late next year in the Brickell section of Downtown Miami, shows how gleaming new commercial spaces are capturing the interest of newcomers and local tenants alike.

"Right now we have 12 full-floor proposals," said Brian Gale, a vice chairman at Cushman & Wakefield, who leads a Miami team overseeing leasing at 830 Brickell. "The overall activity in the market is beyond anything I have ever seen, and this is my 27th year in commercial real estate."

None of the deals have been signed yet and could fall still through, sources warned.

Gale declined to confirm or comment on any specific transactions that were being negotiated at 830 Brickell. Citadel, Microsoft, and Baker McKenzie all declined to comment.

Major out-of-state tenants are about to sign in West Palm Beach

In West Palm Beach, another prominent office market in South Florida about 80 miles north of Downtown Miami, new office tower 360 Rosemary Avenue is drawing attention from out-of-state firms that are either relocating or setting up outposts in the area.

Maryland-based mortgage company New Day USA is finalizing a lease for about 50,000 square feet at 360 Rosemary, a roughly 300,000-square-foot office building scheduled for completion in the second quarter of 2021. A spokeswoman for New Day USA said the company could not yet comment on the pending deal.

360 Rosemary is also where the $40 billion investment management firm, Elliott Management, is close to inking a roughly 40,000 square foot lease, several people familiar with its negotiations say. Both Elliott and a spokeswoman for 360 Rosemary's developer, Related, didn't respond to a request for comment.

Competition for Miami office space ramps up 

Area companies are adding to the demand for new office space, especially in Miami.

In Coral Gables, an area southwest of Downtown Miami, local private equity firm H.I.G. Capital recently signed on for a little over 20,000 square feet of office space at The Plaza, a mixed-use development that includes two office buildings, one of which was recently completed.

Shay Pope, a senior vice president at CBRE, said that he is representing a financial firm that is also in negotiations to take a roughly 30,000 square foot space at The Plaza. The tenant, Pope said, had previously been looking at 600 Brickell Avenue, a roughly decade-old office building in Downtown Miami, but hadn't been able to complete a deal because direct space at the property was scarce.

Read more: Hedge funds tour Florida office space 'one to three times a day' amid 'torrential' interest from out of state, broker says

That's a key indicator that the Miami market has become increasingly tight as both in-state and out-of-state interest in new office space has picked up in recent months.

"The challenge is finding space like that in Miami right now," Pope said. "It pushed our search to new development."

More deals are pending at The Plaza, according to Tere Blanca, the chairman and CEO of the commercial real estate services firm Blanca Commercial Real Estate, who is handling leasing at the property. 

The Plaza's office component, located at 245 SE 1st Street, consists of two towers totaling roughly 450,000 square feet. The second of the two is scheduled to be completed by the end of the year, Blanca said.

"They're trophy assets for the new-to-market tenants streaming into South Florida," Blanca said. "We certainly are engaged in active negotiations to lease more space."

Commercial real estate developers are betting on migration to the Sunshine State

The transactions are part of a wave of office deals in the South Florida market. Low taxes, year-round warm and sunny weather, and an influx of wealthy corporate and financial industry executives have made it a rare bright spot of activity in an otherwise moribund office leasing market nationally.

"There's around 1 million square feet of new-to-market tenants roaming around for space right now," Gale said. "This week alone we have received over 100,000 square feet of new inquiries."

The activity has caught the notice of developers, who are eager to tap into the demand.

Hines, for instance, is marketing a new 600,000-square-foot office tower in Downtown Miami called Miami WorldCenter in the hopes of securing an anchor tenant and breaking ground on the project.

Related, the developer of 360 Rosemary, has multiple development sites in Downtown Miami it has been shopping to tenants, according to market experts, and in West Palm Beach has announced plans for a roughly 300,000 square foot ground-up office building on the waterfront at One Flagler Drive.

Read more: How Florida is winning over Wall Street firms and tycoons

"For years, the Florida office market was a game of musical chairs, where tenants would move around with small incremental growth, but there wasn't a lot of net new absorption of space," said Alan Kleber, a managing director at JLL in Miami. "Now there's so many new users coming in that you're beginning to see potentially enough demand to drive new construction."

Demand drives Miami office rents up

Recent entrants to the Miami market have shown a preference for top-tier, newly built spaces — and a willingness to pay premium rents to have them.

The nearly $600 billion alternative asset management Blackstone, for instance, recently signed on for 41,000 square feet 2 Miami Central, a Downtown Miami tower finished roughly four years ago.

"This is a new building close to Miami's transportation hub with efficient floors and a lot of light coming in," said Kleber, who represented Blackstone in the transaction. "The quality mattered to Blackstone. This wasn't a stale corporate office tower."

Asking rents at 2 Miami Central range as high as $60 per square foot, sources familiar with the property said, about 50% higher than average office asking rents across the city of Miami, according to data from CBRE.

Asking rates at 830 Brickell — where Microsoft, Citadel, and Baker McKenzie are near deals — are in the upper $70s per square foot, among the highest ever sought by an office project in the city.

Florida notches wins as New York struggles

The vibrancy of the South Florida office market is an outlier nationally at a moment when few other major metropolitan centers are entertaining the prospect of new office development.

In once-booming office markets like Manhattan, for instance, the pandemic has nearly frozen leasing activity and prompted tenants to cast record amounts of office space on the market for sublease. In the fourth quarter of 2020, sublease space made up 24.2 percent of Manhattan's total availability, according to Colliers.

In Miami, by contrast, the sublease availability rate was at modest 2.2% at the end of the third quarter, according to CBRE. Less than 600,000 square feet has been cast on the market since the beginning of the pandemic through the third quarter, CBRE data showed, a fraction of the roughly 20 million square feet in Manhattan that's hit the market.

Remote work and a migration of businesses and residents to secondary cities across the country has clouded the timeline for a recovery in onetime office strongholds like New York City and San Francisco even as the ongoing rollout of vaccines has brought an end in sight to the pandemic.

Read more: How $35 billion hedge fund Citadel rented out a five-star Palm Beach resort to pull off an in-person internship 'bubble'

South Florida, however, has been a beneficiary of the upheaval. The area's climate has made it an alluring escape for those tired of lockdowns and social isolation. The state's absence of an income tax and low corporate tax rate are also a magnet for high earners, such as financial executives, who have begun to relocate from New York City or set up ancillary offices.

Though accelerated by the pandemic, finance titans' predilection for the Sunshine State does predate it. In 2019, investor Carl Icahn, for instance, moved his company's operations from Manhattan to Miami. Citadel's chief executive, Ken Griffin, purchased nearly $200 million of residential property in South Florida that same year.

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As an army of Reddit traders bid up share prices of several of Wall Street's most shorted stocks, brokerages including Robinhood and TD Ameritrade restricted trading of the targeted securities.

The moves sparked ire from many on the argument that markets and price discovery ought to be free.

But according to the CEO of a Wall Street research firm, the brokerages may trigger something else in the coming days: a massive market crash.

David Trainer, who heads New Constructs, told Insider on Friday that he thinks brokerages' actions to halt certain trades this week will sow widespread distrust in the markets among retail investors, leading them to pull their money from accounts. 

This, combined with the "new normal" narrative that he says is propping up current sky-high valuations, could bring about a steep drop, he said. The S&P 500 was rocked this week by a 3.6% decline, its worst since October, amid the retail-trading frenzy and after a rapid rise that had many experts worried about a market bubble.

"The new normal depends on the trust of the individuals — they hold a lot of power right here, as they are starting to exercise as we're seeing in individual names. They hold similar power over the overall market. If they say 'to hell with it, I'm out,' we could see a significant and prolonged decline," Trainer said.

"What would you do if you had a bunch of money in a stock and it had done really well and TD Ameritrade or Robinhood said, 'oh by the way, we're not letting you trade this today,' when you know everyone else is trading it," he added.

While Trainer did not want to provide a specific percentage the market could fall by, he said he had in mind a sell-off similar to last year's 35% crash, and added that "it could be maybe one of the worst ever." 

Most investors no longer care that equities are extremely expensive. But speculative excess plus an expensive market make for a particularly volatile cocktail. 

In addition to his bearish warning, Trainer also criticized what he thinks is a double standard from major Wall Street players in that larger entities are allowed to play by a different set of rules than retail traders.

He argued that hedge funds and brokerages being able to see trader flows before the market opens and then acting on this information is no different than what retail traders have been doing this week.

Trainer also refuted the statements made by brokerages that they restricted trades due to issues related to their clearinghouses and not to protect hedge fund clients, who had shorted the stocks.

"Absolutely they're trying to protect their big clients," he said. "Look, how much of the order flow from Robinhood goes to Citadel, who had multiple short positions in GameStop. These are not conspiracy theories, these are true."

Citadel and other hedge funds like Point 72 have denied accusations of conspiracy with brokerages to halt the trading of certain stocks.

Yet while Trainer sides with retail investors' right to trade freely, he said he sees GameStop's stock falling to $40-50 and urged traders to exit positions before such a drop occurs.

Other perspectives on how Reddit-driven mania will affect the broader market

Others on Wall Street in recent days have contradicted Trainer's view that a broader market sell-off will result from the rampant speculation and trade halting from brokerages this week. 

"While these developments could be another sign of excessive optimism in certain segments of the equity markets, we do not believe they represent a sign of a broader market bubble or indicate a major correction is forthcoming," Ryan Detrick, chief market strategist at LPL Financial, said in a statement. "Don't forget, overall market breadth is extremely healthy and the credit markets are functioning just fine — we don't see a repeat of 1999 like some are claiming."

Nigel Greene, CEO of deVere Group, which manages $10 billion, said in a recent note that, "in today's landscape, it is not the macro-bubble of which investors should be wary. Any potential bursting of bubbles is likely to be within specific stocks, so unlikely to rock the global financial markets as has happened previously."

Wall Street's major investment banks also remain bullish in the mid-to-long term. 

However some have begun to caution that heightened investor sentiment and some technical measures of exhaustion could lead to a brief period of underperformance in the weeks ahead.

SEE ALSO: MORGAN STANLEY: Buy these 17 stocks with strong earnings that are expected to outperform into 2022 even if the broader market sinks

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Melvin Capital Management lost over half its assets after GameStop burned short-selling funds this month.

The hedge fund, which was at the heart of the GameStop frenzy, lost 53% in January, sources close to the fund told Insider. The Wall Street Journal first reported the loss. 

Melvin Capital, founded by star portfolio manager Gabe Plotkin, started the year with $12.5 billion in assets and ended the month with more than $8 billion in assets under management after current investors committed additional capital, the source said. Billionaire investors Steve Cohen and Ken Griffin invested $2.75 billion into the hedge fund earlier this week.

Read more:How hedge funds are tracking Reddit posts to protect their portfolios after the Wall Street Bets crowd helped tank Melvin Capital's short positions

Melvin Capital, along with high-profile hedge funds Citron Research and Point72, got torched after GameStop shares skyrocketed this month, fueled by Redditors using trading app Robinhood.

Individual retail investors, including members of the popular Reddit forum r/WallStreetBets, attempted to burn short-sellers of GameStop by buying up shares and sending the stock surging as much as 2,000% month-to-date.  Short-sellers lost about $19 billion on GameStop this year, according to figures from data provider Ortex.

Read more: Hedge fund phenom Dan Sundheim's D1 Capital has been stung by the AMC short bet caught up in Reddit's trading frenzy

Melvin closed its short position on GameStop stock on January 27.

New and existing clients signed up to invest additional funds into Melvin Capital on February 1, the Journal reported, but the firm would not disclose how much.

Citron Research also closed its short position on GameStop after covering a 100% loss. Citron Research managing partner Andrew Left, a target for impassioned investors on Wall Street Bets, announced the firm would stop publishing "short reports." 

The frenzy surrounding GameStop shares turned into a "populist movement,"Insider's Ben Winck reported, and garnered responses from progressive lawmakers calling for tighter market regulation. 

--Insider's Alex Morrell contributed to this report

SEE ALSO: Robinhood is now limiting users to 1 share of GameStop and has restricted trading on 22 other companies

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GameStop shares plummeted 35% on Monday before recovering slightly as the short-squeeze conditions that brought in Reddit's day trader army begin to dissipate.

Short interest in shares of GameStop fell to 39% of the float, from 114% in mid-January, according to IHS Markit data. And a tweet from S3 Partners Ihor Dusaniwsky on Monday shows shares shorted have decreased by 35.2 million over the last week alone.

GameStop has been big news in the markets for weeks after the stock became a target of Reddit's Wall Street Bets forum back on January 11.

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It all started after activist investor—and Chewy co-founder—Ryan Cohen wrote a letter to the beleaguered video game retailer arguing changes needed to be made and new board members added to the company.

Then traders on Reddit found out GameStop had a high short interest rate and realized they could force a short-squeeze, causing shares to skyrocket.

Since then GameStop shares spiked some 1,625% across all of January and over 400% last week alone.

While the move led to huge gains for WallStreetBets traders, it also caused billions in losses to pile up for short-sellers and institutional investors, some of whom had to be bailed out.

Estimates by data provider Ortex on Friday showed that short-sellers were sitting on losses of around $19 billion in GameStop alone in 2021. And even after Monday's move lower, shorts are down some $13 billion in January, according to S3 Partners.

Read more: Buy these 26 heavily shorted stocks as retail traders trigger wild rallies in Wall Street's least-liked names, Wells Fargo says

Still, the blood bath for short-sellers may be over as it seems Reddit traders have switched their focus to silver.

Prices have surged for the precious metal, causing silver miners to skyrocket as well.

For weeks Reddit traders had taken advantage of GameStop's high short interest by flooding the stock with new buyers causing a short squeeze. Now, with multiple brokerages limiting trading in the video game retailer and short interest falling, traders aren't getting the same meteoric returns that have been seen in the last two weeks.

"Short squeezes can only last as long as there is a large short position in a stock. Once that dissipates, the situation changes completely," said Matt Maley, chief market strategist at Miller Tabak & Co.

GameStop traded down 31.08% at $223.99 as of Monday's close.

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Treasury Secretary Janet Yellen has called a meeting of top financial regulators for this week to look into market volatility amid the GameStop trading saga, Reuters reported.

The heads of the Securities and Exchange Commission and the Federal Reserve will reportedly attend.

Day traders banded together on Reddit to help bump up the prices of several stocks— most notably the video game retailer GameStop but also AMC, BlackBerry, and Nokia — last month after noticing that hedge funds were betting against them.

GameStop stock has gained massively in recent weeks, to an intraday peak of more than $450 a share on Thursday from below $5 late last year. As a result, some of Wall Street's prominent hedge funds, including the hedge fund Citadel, were forced to close their bearish bets against the company, with hefty losses.

To arrange the meeting, Yellen had to get permission from ethics lawyers, Reuters reported, possibly because she has been paid more than $700,000 in speaking fees by Citadel.

As Treasury secretary, Yellen was required to sign an ethics agreement mandating written approval before she could "participate personally and substantially in any particular matter" related to the firms from which she's collected speaking fees.

The Treasury on Tuesday said Yellen would meet with the heads of the SEC, the Federal Reserve, the Federal Reserve Bank of New York, and the Commodity Futures Trading Commission, without providing a date. The meeting would happen this week, possibly as early as Thursday, a Treasury official who declined to be named told Reuters.

Read more:How hedge funds are tracking Reddit posts to protect their portfolios after the Wall Street Bets crowd helped tank Melvin Capital's short positions

"Secretary Yellen believes the integrity of markets is important and has asked for a discussion of recent volatility in financial markets and whether recent activities are consistent with investor protection and fair and efficient markets," a Treasury representative told Reuters.

The online brokerage Robinhood responded to the stock frenzy by restricting purchases in highly volatile stocks on Thursday, causing GameStop to drop.

The saga has led some to question the balance of power in Wall Street and ask whether the markets favor massive hedge funds over individual investors. Both lawmakers and the general public have been calling on Washington to investigate.

The White House press secretary, Jen Psaki, said last week that Yellen was "monitoring the situation" around GameStop-related changes in the stock market.

The House Financial Services Committee is also holding a hearing into the saga on February 18. Robinhood's CEO, Vlad Tenev, is reportedly expected to testify as part of this.

Sen. Sherrod Brown of Ohio, the incoming chairman of the Senate Banking and Housing Committee, has also said he will hold a hearing soon.

SEE ALSO: Netflix is reportedly making a movie about the GameStop saga starring Noah Centineo

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The CEOs of brokerage app Robinhood, social-media site Reddit, hedge fund Citadel, and investment-management firm Melvin Capital will testify as part of a House hearing into the GameStop saga, alongside YouTube streamer Roaring Kitty.

The witnesses will testify before the House Financial Services Committee (FSC) on Thursday.

FSC Chairwoman Maxine Watersannounced the hearing "Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide" in January.

Robinhood's Vlad Tenev, Citadel's Kenneth Griffin, Melvin Capital's Gabriel Plotkin, and Reddit's Steve Huffman will all be present, alongside Keith Gill, known more widely by his YouTube name Roaring Kitty, Waters said Friday.

Additional witnesses may be named, she added.

Read more:Volatility expert Christopher Cole warns that Wall Street needs to wake up to social media 'weaponization'. Here are his top takeaways from the GameStop frenzy.

The hearing will focus on short selling, online trading platforms, and gamification, and the impact they have on capital markets and retail investors. Lawmakers including Rep. Alexandria Ocasio-Cortez had called on the FSC to hold a hearing, and investigate if necessary.

Day traders banded together on Reddit to bump up the prices of several stocks, most notably GameStop but also AMC, BlackBerry, and Nokia, after noticing that hedge funds were betting against them.

This caused GameStop stock to jump massively — from below $5 late last year to a peak of more than $450 a share on January 28. Gill's GameStop investments allegedly swelled to $48 million.

As a result, some of Wall Street's prominent hedge funds, including Melvin Capital, were forced to close their bearish bets against Gamestop, with hefty losses. In January, Point72 and Citadel said they would invest $2.75 billion in Melvin Capital.

Robinhood responded to the booming prices by restricting purchases in highly volatile stocks on January 28, causing GameStop stock to drop. The online brokerage has come under fire for its decision, with both politicians and Reddit users saying it disadvantaged individual investors.

The Robinhood app was bombarded with negative reviews on the Google Play store and was criticized by Ocasio-Cortez, Republican Sen. Ted Cruz, and Tesla's CEO Elon Musk.

Read more: How hedge funds are tracking Reddit posts to protect their portfolios after the Wall Street Bets crowd helped tank Melvin Capital's short positions

Tenev told Musk that Robinhood had been forced to temporarily stop users from buying those stocks because the surge had resulted in a deposit requirement of $3 billion from the National Securities Clearing Corporation. This echoed an email Robinhood sent to members, which said: "We didn't want to stop people from buying stocks and we certainly weren't trying to help hedge funds."

"We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility and we must examine the market in general and how it has been manipulated by hedge funds and their financial partners to benefit themselves while others pay the price," Waters said when announcing the hearing.

"Hedge funds have a long history of predatory conduct and that conduct is entirely indefensible," she added, calling out private funds who engage in "vulture strategies that hurt workers."

Democratic Sen. Sherrod Brown of Ohio, the incoming chairman of the Senate Banking and Housing Committee, has also said he will hold a hearing into the GameStop saga.

The US Securities and Exchange Commission (SEC) has also come under scrutiny during the GameStop trading frenzy. Sen. Elizabeth Warren, a longtime critic of Wall Street, told CNN the saga showed the SEC needs to "grow a backbone" and regulate hedge funds.

Netflix and MGM are both reportedly making movies about the saga.

Correction: A previous version of this story misstated Citadel's relationship to the GME frenzy. The company invested $2 billion in Melvin. 

SEE ALSO: MGM is making a movie about the Wall Street-GameStop saga, based on a book by the author behind 'The Social Network'

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The men — and it's almost always men — who run hedge funds don't speak publicly, and they definitely don't like doing so in front of Congress. 

But compared to the last time Citadel founder Ken Griffin sat in front of a congressional panel, Thursday's hearing on last month's GameStop-addled market frenzy comes at a much more pleasant time.

In November of 2008, roughly two months after Lehman Brothers went bankrupt with the housing market in ruins, Griffin along with fellow hedge-fund billionaires Jim Simons, George Soros, John Paulson, and Philip Falcone answered questions for two hours on whether there needed to be more regulation on hedge funds. While Paulson famously made billions on the collapse of the housing market, Griffin did do not nearly as well — Citadel, then 17 years old, was slammed by Lehman's collapse, with funds down more than 30%.

Of course, Citadel survived and has since thrived, hitting its 30th anniversary with more assets than ever while Griffin's separate market-making business, Citadel Securities, continues to grow its market share.

This time around, it's a different hedge-fund golden boy who is down big as he steps up to mic in front of Congress: Melvin Capital founder Gabe Plotkin.

The two hedge funds are being called to testify as Congress examines the links between social media, short-selling, and retail traders. Along with Griffin and Plotkin, Reddit cofounder and CEO Steve Huffman, Robinhood cofounder Vlad Tenev, researcher Jennifer Schulp, and GameStop trader Keith Gill, also known as Roaring Kitty on Twitter and YouTube, will also testify. 

Plotkin's fund lost more than half of its assets in January thanks to a large short position against video-game retailer GameStop. The stock jumped to prices more than 20 times what it started the year at in late January as traders on popular Reddit forums like Wall Street Bets using apps like Robinhood pumped up the stock — and targeted Plotkin specifically. 

Griffin is in the spotlight for having roles on both sides of the saga. Citadel Securities was a key player in executing Robinhood users' trades that catapulted GameStops shares last month, while his hedge fund came Plotkin's rescue, infusing $2 billion into Melvin Capital as it got crushed.

Golden boy Plotkin's quick fall 

Plotkin, who owns a minority stake in the NBA's Charlotte Hornets and bought $44 million of property in Miami at the end of last year, may do what few – if any — wealthy hedge fund managers have done before: Ask for pity. 

Melvin became a target of retail traders because it disclosed some of its bets against GameStop, in the form of put options, in a 13F filing months before the end of 2020. While well-known short-sellers like Andrew Left had publicly spoken about betting against the video-game retailer, Melvin's disclosure showed investors in the r/WallStreetBets subreddit how much he had to lose if the stock went soaring. 

It wasn't just GameStop either; the Robinhood traders targeted other stocks Melvin had put options on, including Bed, Bath & Beyond and AMC. 

The losses led to a bailout from Griffin and Plotkin's former boss Steve Cohen to the tune of $2.75 billion.

In an opening testimony released ahead of the hearing, Plotkin defends his short position in GameStop saying it reflected the retailer's fundamentals and that it never was part of an effort to "artificially depress or manipulate downward the price of a stock," as some Redditors saw it. 

He also addressed how he was personally zeroed in on the message boards.  

"Many of these posts were laced with antisemitic slurs directed at me and others," Plotkin said. "The posts said things like 'it's very clear we need a second holocaust, the jews can't keep getting away with this.' Others sent similarly profane and racist text messages to me."

Retail traders' attack on Plotkin's hedge fund was highlighted by many people in the industry as something that needed to at least be checked out by regulators. Others think more drastic measures should be taken.

Leon Cooperman, in a CNBC interview at the end of January, said the day traders were using their stimulus checks from the government to trade stocks as "a way of attacking wealthy people." One long-time hedge fund manager told Insider if people were to collude to send a stock price down by 80%, participants would likely go to jail. Another said the targeted trading would have been considered "extremely illegal" if it had been done by a group hedge funds instead "Reddit gangsters." 

Nonprofit Better Markets put out a memo Wednesday outlining the areas Congress should consider asking about and possibly legislating on, including "whether some class of retail investors demonstrably intended to engage in manipulative trading practices to effect a short squeeze."

While Plotkin doesn't strike a sympathetic figure in the middle of a pandemic that has costs millions their job, he could be backed in pushing for some type of oversight on this type of retail trading as more stories trickle out of big losses sustained by retail investors. Better Markets' memo notes that "real people lost billions of dollars in GameStop trading." 

'Competitive, fair, and transparent'

Robinhood already has come under fire from people as varied as Senator Ted Cruz to rapper Ja Rule for temporarily stopping certain tickers from being traded on its platform, and its cofounder Tenev will have to answer Thursday about its relationship with Griffin's Citadel Securities.

Citadel Securities pays Robinhood and other online brokerages for its order flow — which is how these brokerages can offer users commission-free trades. The connection – between Griffin's market-making firm and his hedge fund that backed hard-hit Melvin – sparked Reddit rumors about Griffin's influence on the entire market.

"Citadel Securities has not instructed or otherwise caused any brokerage firm to stop, suspend, or limit trading or otherwise refuse to do business," a spokesperson for the firm told Insider earlier this month. "Citadel Securities remains focused on continuously providing liquidity to our clients across all market conditions."

According to Griffin's prepared testimony, Citadel executed 7.4 billion shares on behalf of retail investors on Jan. 27 — more than the average daily volume of the entire US equity market in 2019.

The volatility in the markets and in the specific names give market makers like Citadel Securities wider spreads and more profits, though price discovery is more difficult when markets are as choppier as they were at the end of January. 

Payment for order flow (PFOF) is a common industry practice and lowers the cost of investing for millions of retail traders. But Better Markets said in its memo that it "causes an inevitable conflict-of-interest between the retail broker-dealer's duties to seek best execution for its customers and its duties to shareholders and others to maximize revenues." The nonprofit recommends Congress "explore legislative solutions that would prohibit the practice."

In his prepared testimony, Griffin argues that PFOF is the key reason retail investors are able to trade for free or low-cost today.

He suggests that any regulatory focus should be on shortening settlement cycles from two days to one instead. 

Robinhood and other brokerages said they limited trades on "meme stocks" after Depository Trust & Clearing Corp., or DTCC — the central clearing and settlement organization for US stocks — raised collateral requirements for brokers in response to the market volatility.

"As we have seen, longer settlement periods expose firms to more risk in the time between execution and settlement, requiring higher levels of capital," Griffin said.

Griffin, a big donor to Republicans who keep regulation to a minimum, may not be interested in any additional guidelines from federal agencies. In 2008, he lobbied for clearinghouses to be set-up for the derivatives market, but said: "it is not my belief that we need greater government regulation of hedge funds with respect to the systemic risk they create."

"Our financial markets work best when they are competitive, fair, and transparent," he said. 

SEE ALSO: GameStop-ravaged Melvin Capital has an unlikely investor — the partners at the Silicon Valley VC Sequoia Capital that backs retail-trading app Robinhood

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The House Committee on Financial Services today grilled the power players involved in last month's GameStop trading frenzy.

The CEOs of Reddit, Robinhood, Melvin Capital, and Citadel are testifying to Congress following an unexpected rally of GameStop stock driven by individual investors.

Lawmakers criticized these firms after some retail investors, including members of a popular Reddit forum r/WallStreetBets, invested in GameStop to burn institutional investors who bet against the stock. The trading frenzy caused GameStop shares to surge 2,000% month-to-date on January 29 and caught the attention of Elizabeth Warren, Alexandria Ocasio-Cortez, and Ted Cruz. 

Here's everything to know about Thursday's hearing on GameStop:

What will members of Congress argue during the hearing on GameStop?

Rep. Maxine Waters from California, who is the committee chair, said hedge funds have a "long history" of predatory conduct by short-selling when announcing the hearing.

"We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility," Waters said in a statement.

Rep. Patrick McHenry (North Carolina), a ranking member of the Committee on Financial Services, told Yahoo the Robinhood frenzy wasn't caused by "a single company or any two companies," but rather a desire for more people to get access to stock market gains.

McHenry called to "open up" regulation and laws to allow individual investors access to stock market trading.

Rep. Brad Sherman (California), who chairs the Capital Markets Subcommittee, told CNBC he expects the hearing to "get larger" than just the GameStop situation. He said the capital market should benefit functioning businesses rather than allowing for casino-like day trading.

Rep. Alexandria Ocasio-Cortez (New York) and Rep. Rashida Tlaib (Michigan), members of the committee, took aim at Robinhood after it temporarily restricted trading on GameStop stock, many prominent lawmakers and businesspeople accused the firm of unfairly targeting retail investors. 

"This is unacceptable," Rep. Alexandria Ocasio-Cortez, a member of the committee, said in a tweet following Robinhood's decision. "We now need to know more about @RobinhoodApp's decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit."

How will Reddit, Robinhood, and other firms testifying defend themselves?

Robinhood attracted the most scrutiny for its complicated decision to block GameStop purchases at the height of the rally.

Robinhood initially said it blocked purchases of GameStop shares to "help customers stay informed" amid market volatility. It later clarified that the decision was due to deposit requirements from clearinghouses registered with the Securities and Exchange Commission.

In his prepared testimony, Tenev said the firm has to wait several days to trades to register due to SEC rules, which he argues had led to the lack of deposit money. Tenev urged Congress to look into revising dated SEC trading rules to allow technology to make investing simpler for more people. 

Meanwhile, Reddit CEO Steve Huffman appeared to side with members of r/WallStreetBets in an interview with The Wall Street Journal earlier this month. In his testimony, he said GameStop's frenzy proved Reddit's power in attracting and organizing "everyday people."

"WallStreetBets may look sophomoric or chaotic from the outside, but the fact that we are here today means they've managed to raise important issues about fairness and opportunity in our financial system," Huffman said.

The company said the GameStop saga inspired Reddit to pay for a five-second Super Bowl ad that commented on the situation: "One thing we learned from our communities last week is that underdogs can accomplish just about anything when they come together around a common idea," the ad read.

What will happen after the House's Congressional hearing?

Though the GameStop rally itself was short lived, the Congressional hearing suggests involvement from the firms testifying might drag on. 

Multiple Robinhood users filed a class-action lawsuit against the trading app, leading the firm to beef up its legal team.

"We hope that this House Committee will ask the right questions and require Robinhood to account for its actions," Josh Gossett, one of the plaintiffs in a class-action suit filed against Robinhood on January 29, 2021, said in a statement to Insider. 

Sen. Sherrod Brown, chairman of the Senate Banking, Housing, and Urban Affairs Committee, would hold a hearing to hold Wall Street accountable for the volatile stock market. The hearing date has not yet been announced.

"Robinhood promised to democratize trading, but hid information about its prerogative to change the rules by cutting off trades without notice behind dozens of pages of legalese," Sen. Warren said in a statement on February 17. "I'm going to keep pushing regulators to use the full range of their regulatory tools to ensure the fair operation of our markets, particularly for small investors."

SEE ALSO: Robinhood's CEO is reportedly staying at a hotel instead of going home after receiving death threats

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It seems that wherever you look in the GameStop frenzy, there's a Ken Griffin connection. 

On Thursday, Griffin will testify before Congress as part of a hearing examining the GameStop fiasco and the links between social media, short-selling, and retail traders. 

Earlier this year, the concentrated effort of retail traders, mobilized in large part on Reddit's WallStreetBet's forum and other social media sites, helped push shares of heavily-shorted companies like GameStop, AMC, and others to dizzying heights. 

As the trading volume and price of these companies surged, brokerages were forced to issue trading restrictions on their apps, a move that managed to unite the likes of Mark Cuban, Rep. Alexandria Ocasio-Cortez, and Dave Portnoy.

Robinhood, the trading app that offers free trading and is a hit with millennial investors, has played a significant role in the trading boom. And Citadel Securities is a key player in executing Robinhood users' trades and one of the largest market makers operating in the US, helping to manage the increased volatility in the markets.

Meanwhile, Citadel, which is one of the largest hedge funds in the world, offered a capital infusion to Melvin Capital, the fund that was a focus of the Reddit-fueled trading into GameStop due to its short positions. 

As a result of the recent trading frenzy, both firms have been pushed into the mainstream spotlight. 

And while Citadel and Citadel Securities are separate companies that operate independently of each other, they do share a founder in common: Ken Griffin. 

Paying for retail orders

Robinhood led the charge when it came to offering commission-free trading. Instead of charging trading fees, the startup makes money, as many other brokerages now do, by selling its customers stock and option orders to trading firms like Citadel Securities, Virtu Financial, and Two Sigma Securities. 

The practice of paying for these retail orders has become more common over the past decade. 

According to Robinhood's fourth-quarter order-routing public report, the startup routed all its customers' stock and options orders to market makers as opposed to going directly to trading venues.  

Brokerages like Robinhood are legally required to route their orders to where they can get the best execution, and are also required to set a standard payment structure across market makers so no single firm is privileged. 

In December 2020, Citadel Securities paid $12.4 million to Robinhood to handle a portion of its stock orders. PFOF for options trading proved even more profitable, with Citadel Securities handling the majority of Robinhood trades for the month of December, for which it paid more than $28 million. 

Market volatility

Citadel Securities handled slightly less than a third of all retail flow in the GameStop stock through January 28, or more than $508 million in volume, according to Bloomberg. It was a volatile week in equity markets, which typically means wider spreads for market makers and more profit.

That being said, the severe price detachment from fundamentals exhibited by stocks like GameStop could also have made it more difficult for market makers to accurately quote spreads and ease price discovery.

Also, Citadel Securities isn't just trading with Robinhood, or vice versa. More than a fifth of all US equities pass through the firm's automated trading desk and it executes nearly 40% of retail volume in the country, according to the company.

"Citadel Securities has been a driving force in reducing the costs of trading for retail investors," a spokesperson for the market maker said in a statement. "Last year alone, we provided $1.3 billion of price improvement that went directly into the pockets of retail investors."

And Citadel Securities isn't the reason Robinhood curtailed trading in some stocks, despite lots of social media chatter that it may have been behind the decision.

Instead, Robinhood and other brokerages have said the Depository Trust & Clearing Corp., or DTCC — the central clearing and settlement organization for US stocks — raised collateral requirements for brokers in response to the market volatility. In response, some firms chose to curtail trading in certain shares like GameStop.

Still, the rumors about Robinhood's connection to Citadel Securities grew so loud that Tesla chief Elon Musk brought up the question in an interview with Robinhood CEO Vlad Tenev on Clubhouse.

"There was a rumor that Citadel or other market makers kind of pressured us into doing this," Tenev said, "and that's just false."

"Citadel Securities has not instructed or otherwise caused any brokerage firm to stop, suspend, or limit trading or otherwise refuse to do business," a spokesperson said. "Citadel Securities remains focused on continuously providing liquidity to our clients across all market conditions."

Citadel bailed out Melvin Capital

The extent to which legions of retail traders had executed a short squeeze on GameStop, and the damage inflicted on funds that were short the stock, wasn't truly visible until Gabe Plotkin's star hedge fund Melvin Capital announced on January 25 it was receiving a capital infusion from the $33 billion hedge fund Citadel and Steve Cohen's $19 billion Point72. 

The cost was $2.75 billion, $2 billion of which was paid by Citadel and the rest by Cohen's own fund. It was still barely enough to stem the bleeding, as Melvin Capital closed its GameStop short position on January 27 and was down 53% in January, Insider reported. Citadel, meanwhile, is reportedly only down 3% through January, with 1% of that loss related to its investment in Melvin.

Even with Melvin's recent down performance, the investment was a remarkable opportunity for the two funds to grab a share of a highly-competitive rival hedge fund by grabbing a stake in the firm.

"I am incredibly proud to partner with Ken Griffin and Steve Cohen," said Plotkin in a statement at the time. "The team at Melvin is eager to get to work and reward the confidence of these two great investment icons."

Silver rush

As retail traders appeared to move on from GameStop early this week — the stock is now down 70% from its opening price on Monday — they instead turned their attention to silver. 

Traders pushed the price of silver to an eight-year high in early February in an effort to target the short-sellers of the commodity.

In particular, the popular silver exchange-traded fund iShares Silver Trust ETF (SLV) saw record inflows of $1.2 billion in January, and the fund jumped as much as 16% on February 1 to more than $27 before dropping down to around $25 a few days later. Among the biggest shareholders in SLV: Citadel. 

Data compiled by Bloomberg shows that Citadel owned about 6 million shares of the ETF worth more than $130 million, as of its 13-F filing with the SEC last September, although it's unclear how much of the fund Citadel might still own. 

Reddit members of the WallStreetBets forum have hardly been united in pumping the commodity, in both a recognition of the vastly larger size of the silver market compared to the one for GameStop, and that firms like Citadel only stand to benefit from an increase in silver's price. 

One Reddit member titled a post, "Those of you getting into silver just made Citadel and the banks millions, well done…" Another post sarcastically asked"Is this how I buy silver?" and included a screenshot of a buy order of, naturally, 50 shares of GameStop.

The profile of Citadel and Citadel Securities continues to rise

Ken Griffin's connection to the GameStop trading frenzy illustrates the prominence on Wall Street of both Citadel and Citadel Securities, one that is the product both of the enduring power of one of the world's largest hedge funds and advancements in trading and market making as a result of cutting-edge technology.

Citadel played a key role in propping up the very target of the coordinated WallStreetBets effort to bring down short-sellers, nabbing a stake in a competitor in the process, and is coming off what seems to be one of its better years in history. 

Citadel Securities, meanwhile, further solidified its role as one of the top market makers on Wall Street as it helped to handle significant volatility. 

And while both Citadel and Citadel Securities have long been a staple of Wall Street, recent events have pushed their profiles into the spotlight. As a result, both firms are now more recognizable to the general public than ever before.

SEE ALSO: Citadel's Ken Griffin and Melvin Capital's Gabe Plotkin are about to get grilled by Congress over the GameStop frenzy. Here's what to expect.

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Rep. Brad Sherman accused Citadel CEO Ken Griffin of "wasting his time" during a Congressional hearing about January's GameStop stock trading frenzy on Thursday. 

Sherman, a Democrat from California, became heated and interrupted Griffin multiple times as he questioned the executive if Citadel gives better prices to certain brokerages, like Robinhood and Fidelity, to execute their trades. 

Griffin began answering the question by explaining the quality of Citadel's execution varies by how the order comes in and the size of the order received. Sherman said Griffin did not answer his question directly, and instead avoided answering by "making up other questions."

"You are doing a great job of wasting my time," Sherman said. "If you're going to filibuster you should run for the Senate."

The House Committee on Financial Services called the hearing after individual investors caused GameStop shares to surge, in part to burn funds that bet against the stock. 

The nature of Robinhood's business model was a major focus of the hearing. Robinhood offers users commission-free trading by charging market making firms  — like Citadel Securities — to execute its users trades. Those firms are required to  best execute the orders and are able to split the profits of the trade — which can be less than a penny per order — with the brokerage firm.

Critics says this can cause a conflict of interest because market-makers will find better prices for certain brokerages they work with. Legendary investor Bill Gurley had called to ban payment order flow systems altogether during the GameStop saga.

Griffin said individual investors benefit when going through market makers.

"I think it's important to recognize that we have vigorously advocated for execution quality to be one of the dominant decision-making factors providing order flow in the United States," he said in the hearing. "This has saved retail investors billions of dollars over the years in contrast to the executions that they would receive through other execution strategies."

Sherman's office was not immediately available for additional comment.

Bradley Saacks contributed to this report.

An earlier version of this story misstated Citadel's involvement in January's Gamestop trading activity. The firm offered a capital infusion to Melvin Capital, which had bet against the stock. 

SEE ALSO: The GameStop hearing combines everything lawmakers love: grilling tech execs and pointing fingers at Wall Street greed

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Just weeks after the GameStop stock bubble popped, the US House of Representatives Financial Services Committee held an hours-long hearing examining what happened.

Though that hearing featured a variety of chief executives, from Reddit CEO Steve Huffman to Citadel CEO Ken Griffin, and even featured one popular financial influencer, the main target of questioning was Robinhood CEO Vlad Tenev.

Questions to Robinhood focused on the app's decision to halt trading and how it "gamifies" stock trading

With over 50 members of the House of Representatives participating, the lines of questioning varied wildly. Some representatives asked Tenev about Robinhood's choice to halt trading of GameStop and other such "meme stocks" on January 28, while others asked him about Alex Kearns, a 20-year-old Robinhood user who thought he had lost $730,000 on the app. Kearns died by suicide in June 2020. 

"I'm sorry to the family of Mr. Kearns for your loss,"Tenev said.

Kearns repeatedly contacted Robinhood's help desk, but didn't receive a response before he died. During his allotted time, Rep. Sean Casten played Tenev the recording that users hear when they call Robinhood for help.

He also criticized Robinhood for the "innate tension" at the heart of its business model, which he said is split "between democratizing finance, which is a noble calling, and being a conduit to feed fish to sharks." 

Lawmakers primarily focused on Tenev due to the stock trading app's critical role in the explosion of GameStop's stock value: Between January 20 and January 26, GameStop's stock value leaped from just over $35 per share to north of $140 per share. By January 27, it hit new highs of over $325 per share — an over 8,000% increase from just a few months ago.

The next morning, Robinhood halted trades of the stock because it ran out of money to cover the upfront cost of its customers stock purchases. The company even had to dilute its own value in order to quickly raise capital — a $3.4 billion investment from several different firms was announced in early February.

Tenev repeatedly told lawmakers the same story he's told previously: Robinhood was forced to temporarily halt trading of GameStop and several other stocks because the National Securities Clearing Corporation demanded $3 billion to cover volatile trades.

And he refuted claims that the decision was driven by the hedge funds which had taken out short positions on GameStop stock, as did Melvin Capital Management CEO Gabe Plotkin who also joined the hearing.

Another notable criticism repeatedly leveled at Robinhood: Gamification. The app notoriously features audio and visual elements that cheer on user actions. "We didn't encourage anyone to tap on anything," Tenev said in one such exchange. "We wanted to give our customers delightful features so they know we're listening to them and we care about them."

Technical difficulties persisted throughout the nearly 5-hour hearing

From the very beginning of the hearing, technical issues plagued the video conference. Hot mics were frequent, and a few major sound issues caused pauses.

As the hearing — which kicked off at noon — pushed on, exchanges between legislators and interviewees got more and more brief.  

Legislators frequently cut in mid-answer with "I'll reclaim my time" in an effort to squeeze another question in. And an exchange between Rep. Rashida Tlaib and Citadel CEO Ken Griffin just after the five-hour mark got particularly contentious, as he attempted to talk over her. "Let me finish my answer. I think it's important," he said. "No, no," Tlaib responded. 

The few exchanges with Keith "Roaring Kitty" Gill, a stock trader who made a name for himself as a YouTuber, were largely focused on what he specializes in: stock advice. Gill said he would still buy GameStop stock at its current value, and that he initially bought in months ago because it was "undervalued." Also of note: Gill's opening statement included at least one notable meme reference.

Ultimately, there were no huge revelations about the GameStop stock bubble or the major players involved in it from Thursday's hearing. It's the first of several such hearings that the financial services committee plans in the wake of the bubble's popping.

You can watch the full hearing below:

Got a tip? Contact Business Insider senior correspondent Ben Gilbert via email (bgilbert@businessinsider.com), or Twitter DM (@realbengilbert). We can keep sources anonymous. Use a non-work device to reach out. PR pitches by email only, please.

SEE ALSO: A congressman asked Robinhood's CEO to listen to the 12-second message that ends with a hang-up when users call the support li

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In a Tuesday hearing held by the United States Senate Committee on Banking, Housing, and Urban Affairs, Senators sat down with five experts to discuss "Who Wins on Wall Street? GameStop, Robinhood, and the State of Retail Investing."

In the hearing, Duke Law Professor Gina-Gail S. Fletcher was asked by Sen. Sherrod Brown (D-OH) about stock brokerages using the payment for order flow business model.

Payment for order flow (PFOF) entails brokerages selling customers' buy and sell orders to market-makers like Citadel Securities, Virtu, or Two Sigma. This allows the firms to generate revenue without charging commissions for trades.  

When asked about the PFOF model, Duke law professor Gina Fletcher said that payment for order flow models "undermine the relationship between the broker and their client."

The testimony was a rebuke of brokers like Robinhood, which rely on payment for order flow for the majority of their revenue.

Fletcher said that payment for order flow "pits the broker's primary revenue source directly against the clients to whom they owe a duty of best execution."

She also noted that it allows brokers to "say that they are offering zero-commission trading to retail investors when commissions are being subsidized by wholesalers." 

Professor Fletcher continued: "Under the payment for order flow model, brokers are incentivized to put their own profit-seeking interest above their clients' in deciding where to route orders."

Other experts on the panel included Rachel J. Robasciotti, the founder & CEO of Adasina Social Capital, who said that payment for order flow allows brokerages to profit while they give clients trading execution prices that are well below market value.  

Robasciotti argued that the practice should be banned altogether due to the lack of disclosure adding, "if you don't see what you are paying you are probably paying more than you would be comfortable with."

Other experts weren't as quick to call for a ban on the practice, but the group all agreed that the Securities and Exchange Commission should look into the payment for order flow model to decide if it should be allowed to continue. 

To find out if a broker is getting paid for order flow, check out this article to learn more.

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