Exhibit 32: Deposition of Steven Grenadier — In re January 2021 Short Squeeze Trading Litigation (Dkt. 559-34, S.D. Fla.)
Summary
Exhibit 32 (Document 559-34) in In re January 2021 Short Squeeze Trading Litigation, No. 1:21-MD-2989-CMA (Case 1:21-md-02989-CMA), entered on the FLSD docket April 28, 2023: 17 pages of excerpts from the transcript of the deposition of Steven Grenadier, Ph.D., taken by remote Zoom proceedings from Menlo Park, California on Wednesday, April 19, 2023 and reported by Leslie Rockwood Rosas, RPR, CSR 3462. In the excerpted testimony Grenadier describes being an index investor with a well-diversified portfolio, more risk averse than the average person, holding California municipal bonds and short-term treasury bonds, and never trading on momentum or making short-term trades in equities. The excerpt closes with testimony that the Robinhood restrictions were essentially sell only, no buy, and over time weakened to limits.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Cite this document
“Exhibit 32: Deposition of Steven Grenadier (Dkt. 559-34).”
Original at archive.org. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2023-04-28-covid-era-misc-8e7f7216-1/
, SHA-256 8e7f7216377831e8c3b8f294e0cd280145e9663bdd21e6b8a8d98bf4f8884084.Full text
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 1 of
17
EXHIBIT 32
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 2 of
17
Page 1
1 IN THE UNITED STATES DISTRICT COURT
2 FOR THE SOUTHERN DISTRICT OF FLORIDA
3
4
5 IN RE JANUARY 2021 SHORT
SQUEEZE TRADING LITIGATION No. 1:21-MD-2989-CMA
6 ____________________________/
7
8
9
10
11
12 DEPOSITION OF STEVEN GRENADIER, PH.D.
13 Remote Zoom Proceedings
14 Menlo Park, California
15 Wednesday, April 19, 2023
16
17
18
19
20
21
22
23 REPORTED BY:
24 LESLIE ROCKWOOD ROSAS, RPR, CSR 3462
25
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 3 of
17
Page 22
1 Q. And what type of investment strategies have you
2 used in the past?
3 A. So I am basically an index person. So I have a
4 very well-diversified portfolio, and I mean diversified
5 across countries, asset classes, all that kind of stuff.
6 So I'm very much -- very diversified. I would say I --
7 my only -- only idiosyncratic nature is I'm probably
8 less risk -- more risk averse than the average person so
9 I generally keep a higher component of my money in low
10 risk fixed income than -- than most people do.
11 Q. Like corporate fixed income or government fixed
12 income?
13 A. Generally government fixed income. So of that,
14 of course, is for tax reasons, I hold a lot of California
15 municipal bonds, but I also own a lot of relatively
16 short-term treasury bonds.
17 Q. Do you -- do you ever trade on momentum?
18 A. I do not.
19 Q. Do you ever make short-term trades in equities?
20 A. I never have.
21 Q. What is the fundamental value of a stock?
22 A. So generally, so that's -- that's not a -- that
23 term can be defined different ways by different people.
24 Let me try to give you my best understanding of a sort of
25 umbrella meaning to that.
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 4 of
17
Page 23
1 Fundamental value of a stock is the present
2 value of all future cash flows that you will receive by
3 holding stock.
4 Now that might sound sort of definitional, but
5 it's actually a very important concept. We hold
6 stocks -- they're not like widgets. We hold stocks for a
7 particular reason, and that's because we want earnings
8 from them. We want cash flows from them.
9 And so given that basic idea, anything that
10 determines those underlying cash flows is what we would
11 consider a fundamental value. So, for example, type of
12 things that influence those future earnings would be
13 expectation -- excuse me, cash flows, would be
14 expectations of things like revenues, profits,
15 competition, and of course, underlying riskiness.
16 So it's these company-specific characteristics
17 that would drive a fundamental value as opposed to
18 non-fundamental things such as frenzies and bubbles and
19 madness of crowds, that kind of stuff.
20 Q. Is there -- do you know how to derive the
21 fundamental value of a stock?
22 A. Unfortunately, there is no one fundamental value
23 of a stock. We try our best to get a good estimate of
24 it, but it's -- it's a -- something we try to approach.
25 But I don't believe there is a known fundamental value.
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 5 of
17
Page 24
1 In a metaphysical sense, maybe there is one that's known
2 to some sort of deity, but in general, all we can do is
3 estimate it.
4 So I've never thought that there is a
5 fundamental value that I can grab onto, but we try very
6 hard to estimate it.
7 Q. You've done damages analyses in securities class
8 actions before; is that right?
9 A. Yes.
10 Q. All right. Now have you ever used the term
11 "true value" in connection with a securities class action
12 damages analysis?
13 A. I don't know. It's possible. It's not the type
14 of term that falls right out of my lips. So it's
15 possible. It's not the normal term I use, but it is
16 possible I've used that in some report.
17 Q. Okay. So, you know, in the typical Section
18 10(b) securities class actions, you know, stock drop
19 case, how would you measure per-share damages? What's
20 the simple calculation you would typically use to
21 measure?
22 A. So generally in most of these cases, there's
23 something I would call conceptual, which is the
24 difference between an actual value at a time, you know,
25 in the real world, versus a but-for value, which is a
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 6 of
17
Page 26
1 been announced at $8 versus $10. You were trying to
2 figure out as best you can what the stock would have
3 traded for in that but-for world.
4 Q. And is it -- is it necessarily true there the
5 but-for value is equal to its fundamental value?
6 MR. RYAN: Objection to form.
7 THE WITNESS: So, again, I don't normally think
8 of the fundamental value there. I don't know. I would
9 normally think of it -- I think the best way I convey it
10 is the but-for price would have been an economist's best
11 estimate of what the price would have been in the actual
12 world had the circumstance -- circumstances had been what
13 is described in the but-for world, what the price would
14 have been in that world.
15 Q. BY MR. ROSEN: Do you have any sense of what
16 portion of the volume of trading on the NYSE and NASDAQ
17 that is represented by investors who buy primarily based
18 on their view of the fundamental value?
19 A. I don't know the answer to that question.
20 Q. Okay. So, well, you know, is it true that
21 there's a quite a lot of people or there are many people
22 who -- who are considered -- who consider themselves
23 value investors or value investing is sort of a strategy,
24 an investment strategy that people use, some people use.
25 Is that fair?
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 7 of
17
Page 27
1 A. It is fair. But I would add that what one
2 person called a value investor is very different than
3 others. I -- I teach a class that's primarily on value
4 investing. And even people who are real-world value
5 investors, they have very different views of what value
6 investing is. It's sort of a constant shock to me.
7 But value investing as a term is used all the
8 time among certain kinds of investors.
9 Q. Have you ever heard of the investment strategy
10 called technical analysis?
11 A. I have.
12 Q. And what do you understand that to be?
13 A. So, again, with the caveat that that's a very
14 broad term, technical analysis is -- technical analysis
15 is generally used by investors who focus more on what I
16 would call trends and timing issues.
17 So an example of a technical analysis put to
18 work would be somebody who believes in what you asked me
19 earlier about momentum. They may believe over certain
20 time horizons stocks that went up are more likely to go
21 up again.
22 There are also technical analysts who do the
23 exact opposite, and they try to find stocks that moved up
24 recently, and they think they're going to go back down.
25 So for any sort of drawing I could do on a
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 8 of
17
Page 28
1 chalkboard of a price path of a stock, I could find
2 analysts that see all different -- technical analysts
3 that see all sort of things. But in general, technical
4 analysis is focused on trends and pattern spotting.
5 Q. And are there -- are there investment funds that
6 use technical analysis as an investment strategy?
7 A. I'm sure there are.
8 Q. What about high-frequency trading? Could --
9 what exactly is this?
10 A. Sure.
11 It -- a lot of high-frequency trading would fit
12 into technical analysis. So high-frequency trading, very
13 generally, is doing some sort of pattern recognition, but
14 as the name implies, over very short frequencies,
15 sometimes fractions of a second.
16 And generally nowadays, they're computer driven,
17 and the competition in that world has gotten down to who
18 has the fastest connection to the trading platform. And
19 so they compete over large amounts of investments in some
20 sort of wire or wireless technology to trade as fast as
21 possible, seeking profits from very short-term trading
22 patterns.
23 Q. Now I've heard the term "program trading" in the
24 past. Is that -- is that a broader -- is -- is
25 high-frequency trading a subset of program trading?
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 9 of
17
Page 29
1 A. I would say so because they're both often --
2 obviously for high frequency, they're computer generated,
3 there's not an individual that's thinking in split
4 seconds. They're both computer driven.
5 But there's a large body of trading that's
6 program trading that's very different. So an example
7 might be a strategy that uses a computer to formulate
8 hedges.
9 So an institution might use computer trading
10 that would invest in an equity that the computer figured
11 out how to get an insurance like put option on it at the
12 same time to get rid of some of downside.
13 And that's not necessarily the same thing as
14 high-frequency trading.
15 Q. And earlier the term "momentum trading," I don't
16 know if I mentioned it or you mentioned it. Could you
17 explain what "momentum trading" is?
18 A. Sure.
19 Let's just be generic for the moment and just
20 say there is a horizon, which could be a week or a month
21 or a day. And momentum generally believes that what we
22 call there is positive auto-correlation. That is a rise
23 in a security's price over a particular period of time is
24 more highly to be followed by a subsequent rise.
25 So that's a particular pattern, and momentum
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 10 of
17
Page 30
1 traders sometimes believe there are such patterns over
2 these split seconds that we previously spoke about. But
3 they also believe that it may also be true over longer
4 periods like weeks or months.
5 I am not aware of a momentum trader that
6 believes they last for many years. In fact, generally
7 people believe the opposite over longer periods of time.
8 Q. What about the investment strategy called trend
9 following? Is that separate from momentum trading?
10 A. I would put -- so that's not a term that I use.
11 I would view trend following as a -- as an analogous term
12 for technical analysis.
13 Q. Okay. So what about "swing trading"? Do you
14 know what "swing trading" is?
15 A. I don't.
16 Q. How about the investment strategy called "moving
17 average crossover"?
18 A. I know what a moving average is. That's sort of
19 a -- you know, if you have a list of data, you can
20 calculate an average, and then every day that data shifts
21 forward another day, and you can calculate another
22 average. And you can track those averages over time.
23 That's all -- I know what a moving average is.
24 The strategy you're talking about conveys that it uses
25 the moving average, which sounds like technical analysis,
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 11 of
17
Page 31
1 but I do not know that particular strategy you mentioned.
2 Q. Okay. And you mentioned index investing.
3 That's another separate strategy; is that correct?
4 A. I would say so. In my view, yes, it is.
5 Q. And what about growth investing? Is that
6 separate from value investing?
7 A. It is. With the same caveat. Some people say
8 growth investing sounds just like someone else's value.
9 But in general, growth investing is what it sounds like.
10 You're trying to find stocks that are going to grow
11 faster than others in the future.
12 Q. What about socially responsible investing; is
13 that a separate investment strategy?
14 A. So I would mostly say yes. I'm not 100 percent
15 sure I would call it wholly an investment strategy. It
16 could also be a more broad strategy of what people view
17 as something that's good for society as opposed to what's
18 good for their portfolio. They get enmeshed.
19 But social investment strategy is a strategy
20 where investors take into account things other than
21 financial values, and you can come up with your own list
22 of what they're looking at, but it could be whatever they
23 think is good for society, they may take that as an
24 attribute and something that makes them want to invest
25 more in it.
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 12 of
17
Page 32
1 Q. What about the investment strategy called
2 "events-driven investing"? Have you heard that term?
3 A. I believe so.
4 Q. And that's, for example, mergers or investing
5 when a merger is announced? Is that an example of
6 events?
7 A. That would be my understanding. There's a hedge
8 fund strategy that they will call events driven, and
9 sometimes it's things that are even broader in a macro
10 context. Like I think of a George Soros as doing this
11 kind of thing. About sort of like large events dealing
12 with monetary policy and things like that. So I'm
13 familiar with events, not just corporate events, but also
14 macro events, too.
15 Q. Now we -- your -- your -- your report mentions,
16 it uses the term "short squeeze," and you understand what
17 that -- you have a general idea of what a short squeeze
18 is supposed to be; right?
19 A. I think that you put it correctly. I have a
20 general idea. It's a bit of a term of art. As I think I
21 convey in my report, the definitions vary, but we all
22 agree on some basic principles of a short squeeze.
23 Q. Do you -- do you think it would be fair to
24 characterize investing because you believe there is a
25 short squeeze to be a form of event-driven investing?
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 13 of
17
Page 33
1 A. I -- I don't really have a good answer to that
2 because I don't use the phrase "event-driven investing."
3 I don't disagree with it. It's just -- it's not a phrase
4 I would normally use so I'm not sure how to answer that
5 one.
6 Q. Is that because the term "event driven" is so --
7 is very vague?
8 A. I wouldn't even go that far. I would just
9 simply say event-driven investing isn't the kind of term
10 I normally do. So I don't really want to venture out and
11 offer an opinion on a phrase that I normally don't do.
12 Part of it's vagueness, but it's vagueness in my
13 own mind. It's possible there are traders on Wall Street
14 who would say, "I know exactly what you mean by that."
15 But "event driven" to me is a very broad term. So I'm
16 not really sure how I would convey that.
17 Q. What about "contrarian investing"? Is that a
18 type of investment strategy that people use?
19 A. Yes, it is.
20 Q. And how does that work?
21 A. So --
22 Q. Or not work?
23 A. Sure.
24 As a general principle, a contrarian does what
25 it sounds like. They try to make investments that are
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 14 of
17
Page 34
1 currently out of favor with the idea that they think that
2 things will turn around.
3 So I would view a contrarian strategy as being
4 somewhat the opposite as a momentum trader.
5 Q. All right. So there are nine stocks that are
6 the subject of this litigation that are listed in the
7 Complaint. I'll name a couple of them. AMC, GameStop,
8 Koss, Bed Bath & Beyond, Blackberry, et cetera.
9 You're familiar with those nine stocks; right?
10 A. I am.
11 Q. I'll just -- I'll just use the term "nine
12 affected stocks" or the nine stocks if that is -- and if
13 you don't understand my use of the term, let me know, but
14 I'll -- rather than list all nine.
15 So do you -- is it your opinion that those nine
16 stocks were overvalued as of close of trading on
17 January 27, 2021?
18 A. So that is not part of my opinion. It's
19 related -- the question is obviously related to my
20 opinion that as of that period of time, I don't believe
21 they traded in efficient markets. That's my opinion.
22 Now whether they were above or below some sort
23 of value, I didn't form an opinion on that. I -- my
24 opinion was whatever their value was, it wasn't tethered
25 to value-relevant information.
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 15 of
17
Page 35
1 THE REPORTER: Excuse me. Nicholas Lin is
2 asking to join the deposition.
3 MR. RYAN: Yes, he is with Robinhood. He's an
4 inhouse lawyer at Robinhood.
5 (Nicholas Lin enters deposition room.)
6 THE REPORTER: Thank you.
7 MR. RYAN: Thank you.
8 THE REPORTER: You can continue, Counsel.
9 Q. BY MR. ROSEN: Professor Grenadier, would you
10 agree that price is typically the best estimate of value
11 for publicly traded stock?
12 A. I'm sorry, I actually didn't hear the -- I
13 didn't quite hear the end of your sentence. I don't hear
14 everything crystal clear. I hear everything pretty
15 darned good, but I didn't get that one.
16 MR. ROSEN: Let me close my window because it
17 could be noise from the outside.
18 Q. Would you agree that typically price is the best
19 estimate of value for publicly traded stocks?
20 A. So in the context -- if I believe for these
21 stocks, they are traded in an efficient market, which is
22 often the case, then yes, I would agree with you.
23 Q. Okay. And for stocks that are not traded in an
24 efficient market, what is the best estimate of value if
25 not price?
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 16 of
17
Page 36
1 A. Then that's an almost impossible question to
2 answer. Because if you can't rely on the price as the
3 best estimate of value, in an efficient market, we're
4 left to individual calculations. So I don't know what
5 more I can say is investors would have to use other
6 resources to value them, not necessarily silly resources,
7 but sometimes very sophisticated resources to value them.
8 In some grand scheme of things, the people with the best
9 information and the best methods would probably come up
10 with the best estimate of -- of, you know, true value or
11 whatever you want to call it of a security, but there's
12 no one thing that we would all rely on.
13 Q. And you didn't perform any tests to try to
14 estimate the value of any of these nine affected stocks
15 either in the pre-class period or the class period?
16 A. Let me make sure I understand your question.
17 So in terms of did I do any tests to try to
18 value? Can you -- can you give me an example of what you
19 might mean?
20 Q. Well, I don't know. Did you do a discounted
21 cash flow analysis of any of the nine stocks?
22 A. I did not.
23 Q. Did you perform any other analyses in an effort
24 to try to determine what their fundamental value was at
25 any time during the pre-class or class period?
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 559-34 Entered on FLSD Docket 04/28/2023 Page 17 of
17
Page 37
1 A. I did not. My focus was on the prices
2 themselves, or more importantly, the movements of the
3 prices themselves of the -- I think you call the affected
4 stocks, and what was the value relevant information that
5 was conveyed at those times. That, of course, was the
6 substance of my report.
7 Q. Can you -- do you recall what the specific
8 restrictions were that Robinhood imposed on these nine
9 stocks on January 28th, 2021?
10 A. So I'm happy to answer that with a general
11 conveyance of that information. Of course, there was a
12 table with my specific understanding about literally
13 which stocks, which time of day.
14 But my understanding is they changed over time,
15 but there are these so-called PCO restrictions from
16 Robinhood.
17 Quick question: My understanding is you said
18 Robinhood restrictions; is that correct, in your
19 question?
20 Q. Yeah, yeah. I was just asking about Robinhood.
21 A. That was my recollection, but before I went on
22 and on, I wanted to make sure.
23 Yes. And those restrictions are essentially
24 sell only, no buy. And then over time, they changed.
25 But in general they weakened to things such as limits on
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
File and source
- File
- gov.uscourts.flsd.590042.559.34.pdf
- Size
- 535,260 bytes
- SHA-256
- 8e7f7216377831e8c3b8f294e0cd280145e9663bdd21e6b8a8d98bf4f8884084
- Original
- archive.org