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The game retailer, GameStop, will have a new head by July 31st the latest. The previous CEO of GameStop, George Sherman, will step down from his post and will leave the company with a large severance payment, as it has now become known.
In April 2019, Sherman was named GameStop’s Chief Executive Officer, having previously gained management experience at companies such as Victra, Advance Auto Parts, and Best Buy Services. Around two years later, his departure from GameStop was announced, and his resignation is due to take place at the end of July at the latest.
For his two years at the helm of GameStop, Sherman is rewarded with an impressive departure check. This may sound surprising since GameStop has been struggling recently. In fact, during Sherman’s two-year tenure, the company lost nearly $700 million.
Sherman’s large paycheck has little to do with his contract or his success at the company, but instead, everything to do with GameStop’s share price surge in early 2021. Sherman’s payout is coming from the 1.1 million GameStop shares he was given during his time at the company. Based on the current share price, this amounts to around $170 million.
Sherman’s severance pay could have been even higher than reported: According to his separation agreement and the power of attorney recently filed by GameStop, the CEO had previously invested an additional $5 million in GameStop’s shares, which are now reported to be worth around $47 million. In mid-April, Sherman was one of GameStop’s largest single shareholders, with a stake of around 2.4%.
Neither Sherman nor GameStop explained the CEO’s departure, but his separation agreement suggests there have been no wrongdoings.
When Sherman took office in April 2019, GameStop shares cost an average of $9 per share; investors are currently paying $178.00 per share. This price increase was not due to the operational development of the company – the surge happened due to the plaything of retail investors at the end of January 2021, who started a bull market from GameStop shares via the Reddit sub-forum r/WallStreetBets and thus caused a massive price jump.
In addition to this, in 2019, the company’s fiscal-year sales were around $8.3 billion, and it had an operating income of $310 million. While Reddit’s campaign to skyrocket the company’s share price worked, sales and earnings tumbled. The company reported $5 billion in sales in the last quarter of 2020 and an operating loss of $253 million.
Since then, GameStop’s share has been subject to strong fluctuations but is trending significantly higher than at the start of the year. Not only George Sherman benefited from the share price surge, but also three other members of the management, two of whom had also only been employed by GameStop since 2019. These managers had a similar agreement with the company to Sherman and were able to cash out their shares upon departure.
GameStop’s share price debacle revealed the cracks that exist in retail stock trading. A social media-driven market may have earned a fair sum for some investors, but it also brought dramatic losses to others.
A popular app amongst retail investors is Robinhood. In mid-June 2020, 20-year-old retail investor Alexander E. Kearns committed suicide after mistakenly believing he had a negative cash balance of $730,000. The young investor threw himself in front of a train after leaving a note saying he was “financially devastated”. It is likely that the balance was a temporary display until his contracts settled.
Kearns’ family is now suing Robinhood, accusing the broker of “wrongful death, negligent infliction of emotional distress and unfair business practices.” Kearns was granted far more leverage than legally allowed; the young investor believed that he was trading only the money he owned. He tried to reach Robinhood but was unsuccessful.
According to his parents, the day after his death, Alex was sent an automated email stating he did not lose any money, but it was too late.
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