[News Inside] CEO Who Became an Overnight Millionaire Thanks to Retail Investors on the Brink of Bankruptcy

Adam Aaron AMC CEO

▲Adam Aaron, CEO of AMC

[Asia Economy Reporter Kwon Jae-hee] A man who went from the brink of bankruptcy to becoming an overnight billionaire due to a skyrocketing stock price in the past year.

This is the story of Adam Aron, CEO of the American movie theater chain AMC Entertainment Holdings (hereafter AMC).

AMC's spectacular revival is thanks to individual investors known as "ants."

The world's largest movie theater chain, AMC in the U.S., was pushed to the edge of bankruptcy last year due to the impact of COVID-19, even attempting a rights offering. This was less than a year ago.

With theaters unable to operate properly due to COVID-19, sales plummeted to less than one-tenth compared to the previous year, worsening the company's financial condition. As the stock price sharply dropped due to COVID-19, AMC became prey to short sellers.

Short selling is an investment technique where stocks are borrowed and sold first, then bought back later to repay, profiting when the stock price falls. AMC, whose stock price decline was inevitable due to COVID-19-related business deterioration, became prey to short sellers such as large private equity funds (hedge funds).

Given the large-scale trading forces, AMC's fate seemed predictable. However, AMC miraculously revived.

[Image source=AP Yonhap News]

It was thanks to the "ants' rebellion."

The uprising of individual investors in the U.S. against hedge funds' short selling was made possible by the commission-free stock trading app Robinhood. Most of these investors are millennials (born from the early 1980s to 1996), characterized by a strong resentment toward large financial firms due to experiencing the global financial crisis in their youth. They are also familiar with digital devices and value fairness.

Robinhood attracted individual investors with unprecedented benefits, such as offering some blue-chip stocks like Apple upon joining the app. As a result, the number of individual investors opening brokerage accounts in the U.S. increased by 10 million last year.

Especially, the lockdowns due to COVID-19 created an environment where these investors could immerse themselves more in digital device-based investing, which is cited as a background for the "ants' rebellion."

Thanks to these individual investors, AMC's stock price surged 2,850% just this year. Consequently, Adam Aron, AMC's CEO, saw his net worth increase by more than $212 million this year. Aron’s AMC stock holdings were valued at about $8 million at the beginning of the year but are now estimated to exceed $220 million.

[Image source=Reuters Yonhap News]

On the 2nd (local time), the stock price more than doubled, causing trading to be halted temporarily during the day. AMC's stock price reached an all-time high of $72.62 intraday. This was more than a 100% increase from the previous day and nearly double the previous record high of $36.72 on the 28th of last month.

About 20% of the company's total outstanding shares were shorted stocks. In response to the short selling practices of Wall Street hedge funds, U.S. individual investors organized through the financial information exchange site "Reddit" and social media to buy up shares, causing the stock price to surge.

According to financial information analysis firm S3 Partners, short sellers of AMC stock incurred losses of $1.23 billion (approximately 1.37 trillion KRW) just last week.

CEO Aron is reported not to have sold his holdings yet. Instead, in March this year, he gifted 500,000 shares to his two sons. The value of the shares given to his sons currently exceeds $30 million (approximately 3.34 billion KRW).

Having been revived thanks to the individual investors, CEO Aron has started to give back to them. On the 2nd, AMC Entertainment created a dedicated portal on its website for individual investors, offering "special offers" including popcorn. Additionally, to give the 3.2 million individual investors who hold about 80% of the outstanding shares a chance to participate, the annual shareholders' meeting was postponed by more than a month. AMC also decided to donate a total of $100,000 (approximately 110 million KRW) to the "Diane Fossey Gorilla Fund."