Jeff Carlson Explains the GameStop Short Squeeze and Why Government Should Not Intervene

Recently, small investors organized online to buy large amounts of GameStop stock and caused billions in losses to Wall Street hedge funds looking to short that stock and benefit from its declining price.

GameStop had been sinking for years. But in January of this year, prices soared to over $300 a share.

On January 28, the online stock trading platform, Robinhood, suspended all GameStop buying activities, crashing the price. Investors accused Robinhood of manipulating the market in favor of hedge funds, and a class-action lawsuit was filed.

But this is just the surface. To understand what’s really going on, we sit down with Epoch Times contributor Jeff Carlson. He’s worked for 20 years as an analyst and portfolio manager in the high yield bond market.

At the center of the GameStop controversy is one key question: who gets to decide the value of a company?

This is American Thought Leaders, and I’m Jan Jekielek.

Jan Jekielek: Jeff Carlson, such a pleasure to have you on American Thought Leaders.

Jeff Carlson: Great. Always glad to be on with you, Jan. Thanks for having me.

Jan Jekielek: Jeff, I just outlined a little bit of what we’ve been seeing over the past days when it comes to GameStop, and a few other stocks as well. You have a really great op-ed on The Epoch Times right now talking about what you see happening in the broader context. Why don’t we start with what actually is going on here?

Jeff Carlson: The story here actually started some time ago when some investors began looking and stumbled across a very unique situation. GameStop was a company that although it was struggling operationally, balance-sheet wise, it was fine—a lot of cash on the books, no upcoming liquidity hurdles that it wasn’t going to be able to get past. So in other words, a company that was struggling to deal with a declining end market, but didn’t have any trigger that appeared like it was going to push them into bankruptcy or cause them to be pushed into bankruptcy.

At the same time, there was a massive amount of short interest that was embedded in the stock. As some of these potential investors began to look at the situation, they realized that it could be part of a really intriguing and very unique place to invest; that is, they could be in a company that wasn’t imminently going to default and might be subject to a short squeeze as they started to buy shares that they could move the share price up, given that there was just a massive amount of short interest, so much so that it exceeded the float of the shares, which while it happens, is very, very unusual.

Stepping back here, it was a unique situation. Now, all of this finally came to our attention only because the stock finally began to move. December, the beginning of this year, it was trading at $6, I think, just a couple months ago, and then up into the teens and the twenties and of course, over the last couple weeks—in the last week in particular—I think it hit a high of maybe top tick around 400, but between $250 and $350, and there’s been a resulting immense short squeeze that has come at the expense of the hedge funds.

What makes this such an interesting story is that part of what’s happening here is the hedge funds that usually do the squeezing are the ones being squeezed by retail individual investors. So it’s not only a unique investment situation, but it’s also a unique situation in terms of the players and how they’re positioned here.

Jan Jekielek: For starters, let’s get some terms out of the way. You mentioned a number of things right at the beginning and for a starter, you described something called “short interest.” Why don’t you tell me what short interest means and also how shorting actually works.

Jeff Carlson: The situation here is that there were a number of hedge funds that wanted to short this stock. What that means is, you typically borrow shares of the stock, you then sell them, and what you’re really doing is you’re making a bet that the price of these shares is going to go lower, and you’ll be able to buy them back at a lower point in a future point in time, and return those shares and capture the differential. So short selling is basically placing a bet that a stock is going to be undergoing a downward movement at a future point in time.

There’s a wide variety of opinions on short selling. From my perspective, fundamentally, there’s nothing wrong with short selling per se. It can help add liquidity to the market, and it can help bring a market into balance when astute investors realize that a company or an industry—think back to 2008 with the banking sector. It’s fundamentally overvalued, and short selling draws attention to that and can help adjust prices accordingly. It can also be used aggressively.

In this situation, the use of short selling was very, very different from normal and part of that is the fact that the short selling exceeded the float, which is—think about it as the tradable shares of the company. The short selling exceeded the float of the company itself. So in other words, more shares were actually effectively being shorted than were being existed and traded in the market.

There are a few different ways this can happen, but one of the most obvious is what’s called a “naked short”—that is when you actually don’t borrow the shares, you just simply short them. In this particular case, we had one very large hedge fund that established an enormous short position. A couple others joined in, and we had a very unique situation where the short interest exceeded that of the outstanding shares of the company.

Jan Jekielek: That’s incredible to even hear about—to lay person—because you’re basically saying, I intend to borrow this but you’re not actually borrowing it, and somehow someone allows you to do that and then be accountable for it.

Jeff Carlson: Yes, and a lot of the times, naked short selling really isn’t that bad because it’s very easy to obtain shares to cover that short. The problem here is that the demand for the shares outstrips the supply. So if a lot of people have engaged in naked shorting, the ability to go ahead and replace those shares suddenly becomes problematic, and we’ve had this incredible move up in the underlying stock prices. This can be exacerbated with options and the use of options in this scenario, and it also ties into the risk management that’s taking place on the financial-firms side.

Let’s picture a scenario where a stock is trading at a level where it’s out of the money relative to the options. As the stock begins to move up in price and move toward that, those options are also going to move sequentially higher in price. The further those options start out of the money, the greater the beta they can have, the greater the rate of change.

As that happens, that causes a risk reassessment that’s required on the broker side of things, and they may be required to go ahead and effectively buy more shares to balance their risk portfolio, and it creates further demand for the shares and can just create an upward cycle that can be known as a “gamma squeeze.”

Jan Jekielek: That’s super interesting, and I want to talk about options in a moment because that’s also something that’s not necessarily completely obvious to every viewer. Before I go there, the thing I’m really curious about is, given that this company had decent financials, it was a fully functional company even if it was a declining market, why would some of these hedge funds take these incredibly aggressive positions, so to speak, on short selling the stock?

Jeff Carlson: They’re always looking for situations where they can try and push down a company. You’ve got a company that’s in the retail sector—the whole entire way that the business is conducted is shifting to online, so the outlook for the company, long-term, is pretty poor—it’s declining fundamentals. The only thing that they had in their favor was that they had enough cash to muddle along for a period of time, and that’s what these investors picked up on, that there wouldn’t be a near-term trigger that could cause a default.

Now, as this company shares have gone up, it’s also possible that they may be able to get incremental capital, and find a way to shift their business online, and take advantage of this. So one of the big miscalculations was getting involved in a company that actually did have cash on hand. I’ve encountered these situations before where a company’s trading like it is imminently about to go bankrupt, but when you actually look at it closely, you can’t find any reason [for it to go bankrupt]. There’s enough cash on balance; it doesn’t look like they’re going to trigger bank covenants et cetera in the near term.

So you start to realize that there’s not necessarily anything that’s going to imminently push them into Chapter 11 [of the U.S. Bankruptcy Code] even though the long-term scenario for the company looks very, very poor. That’s kind of the environment that GameStop was operating in. I can’t tell you exactly why these guys lifted GameStop. I’m sure they did it along with a number of others et cetera.

Sometimes what these guys like to do is go ahead and put real pressure on a company, drive the stock down, and see if this can lead to a technical violation with the bank covenant. Maybe they miss a quarter or something, and they can control the situation that way and engage with a company throughout management—what have you. Regardless, this is a company whose long-term fundamentals are very, very poor, but they were in a unique position of having enough cash on the balance sheet where there was nothing that was actually going to thrust them into bankruptcy in the very short term.

Jan Jekielek: Let’s go back to these options for a second. How do options actually work, and how does this exponential curve that you were describing earlier actually happen and contribute to the growth of the value of the stock?

Jeff Carlson: Options effectively allow you to express an opinion on a stock long-term, and there are both puts and calls. Maybe without getting too complicated on it, you can use an option to express an opinion that a stock is going to go higher or go lower. Options really originated out of the agricultural markets where farmers wanted to have a known return on their crops when they began the planting season.

A way to think about it for these farmers is that they don’t want to speculate on the price of corn—their business is growing corn. So they would very often want to enter into a future contract where they could deliver their corn in a preset price, and they would just know that this is what I’m going to make for the season, assuming I can grow my crop as I think. That’s the origin of options where somebody says, I’ll be willing to buy your corn from you in six months time down the road at a price of X, and that contract is entered into.

Now, the actual price of corn six months down the road could be wildly different. It could be much higher, it could be much lower. For the farmer, he sets his price, and he’s removed the risk, and he just gets a reasonable rate of return that he’s happy with. That’s how it happened, how it came into being.

On stocks, it’s really the same thing. You’re buying the ability to buy or sell that stock at a price in the future, and there’s what’s called “in the money” [ITM] and “out of the money” [OTM]. In the money is when the stock is trading at the exercise price of the option.

Now, for something like GameStop, which is trading at distress levels on its stock et cetera, I think when people were looking at this, the stock was probably trading around $6 a share or something like that. The underlying options on the stock, generically speaking, would have probably been trading at pennies on the dollar because the assumption would be that the stock wasn’t going to reach the price where the options could be exercised—could be turned into stock. So the options were viewed as likely to expire worthless, and they were trading primarily, really, with what we call “option value,” where the name came from.

However, as the price of the stock began to move up as this buying picked up and new investors came into the fray despite the high level of short interest that existed, then all of a sudden, these options start moving up sequentially in value and at a much more rapid rate than the underlying common stock itself. So for every X move in the price of stock, you had an exponentially higher move in the price of the options.

These options, which were on the brokers’ books—they had them, as a risk management perspective, as being marked as likely to expire worthless—suddenly, it’s looking like they need to make delivery on these options. Suddenly, they are exposed to not having enough GameStop stock to cover these pending options that are coming at them because of the rise in the stock price. So they then need to go get some stock on their books to balance out their risk portfolios, if you will, because they’re always trying to keep themselves neutral in risk.

So as the prices of the options rose dramatically, what looked to be a worthless option that was unlikely to be exercised is now looking very much like it’s going to be exercised, and they need to go get more of the common stock of GME [GameStop] in the market to cover that risk. That creates another area of buying, an accelerated buying cycle that takes place in the market.

Jan Jekielek: That’s incredible. So now you can see how this stock just suddenly started moving up like crazy just over the last week and a bit longer.

Jeff Carlson: I think what’s important to note is, it’s probably very easy to just see this as GME investors, a lot of retail guys coming in and driving all of the upward volatility in the stock, and yes, they played a very large role in that and started it. As that goes on, and as they began to be successful and the stock price moves higher, that changes the risk profile on the books for the people that had sold the underlying options et cetera, and then they need to adjust their risk and in doing so, they need to buy themselves. So it brings a whole nother buyer into the marketplace. That typically isn’t talked about as much. It is an increased cycle of buying.

Now, we haven’t even addressed the short sellers yet. The short sellers are required to, at some point, go ahead and cover their bet, and they need to do that by buying back the shares that they sold short. That was the fundamental play that was being looked at by the retail guys to begin with: It is that as this price moved up, if it didn’t go in the direction that the short sellers were betting, the short sellers are going to be forced to go out there and buy stock in the market themselves to cover their short position, and so that’s been ongoing.

There’s one large hedge fund that has stated that they’ve covered [and] closed out their short. Whether or not that’s entirely true, I guess I can’t testify to this point. The short interest is still very, very high in GME. Some of that probably comes from other hedge funds that have come into this mix and may have reestablished short positions at much higher levels, thinking that one way or the other, ultimately, GME is going to go down on fundamentals.

But the short interest that’s out there is still very, very high, which you look at that as incremental demand in a sort of perverse fashion that at some point, those shorts need to be closed out and covered. That’s done by obtaining stock, which right now is very hard to find. So we have a very unique situation, and we have a uniquely high price in obscurity.

Jan Jekielek: Something really interesting happened as this price was going up. I think it was on the 28th. All sorts of action happened. We had all sorts of financial pundits—I don’t know if you call them that—basically talking about the stock [and] saying, Oh my goodness, this is ridiculous, this isn’t the real value.

For example, we had platforms like Robinhood actually stopping … the buying of the stock. Presumably, this looked like all sorts of activity to try to lower the price, and I’m wondering if you could tell me about that. It seems to have worked on Thursday, [January] 28, but then on [January] 29, we saw backward to an upward motion.

Jeff Carlson: I guess it’s a complicated question. There are a lot of different things going on here. I think the generic backdrop to all these is kind of a little guy against the big [Wall] Street firms. In this case, the little guy has been winning. Robinhood, which is one broker of many but just happened to be used by a lot of the retail guys to buy GME, halted the ability to make incremental purchases in GME. I think you are right, it was on Thursday when they did that.

There was also some discussion that they were liquidating some holders’ accounts, including accounts that may or may not have actually been margin accounts, so that whole backdrop is still a little foggy, but the reality was, they restricted any further buying in these accounts. The answer to why they did that is also a little complicated and also not entirely known. Some of that was probably stemming from real risk management because as the price swelled up, that does change the way their books look and the internal risk adjustments they have to take.

For most of their investors—their investors were long buyers—so they had hard assets in their account in the form of this GME stock. Now, I don’t know what the structure of their individual accounts look like,  where they might have borrowed elsewhere et cetera—who knows.

I have seen some people make the argument that it was all due to the buying of the GME stock, but the GME stock was a purchase, it wasn’t a short sale. Now, it may have been done on margin and again, there are risk requirements that these firms have to manage themselves, so that was very much a part of it. One question I do have though is, Robinhood is this online platform that says [they] don’t charge any commission. In effect, they do. Everybody needs to get paid. They just do it in a different way. Robinhood is aggregating all these orders, but they are then turning them over to a broker that’s behind them for execution of that order, and they actually get paid for this order flow that comes in.

So there’s an executor, a much larger firm that’s behind Robinhood that Robinhood sends all these orders to, to be traded. That broker gets to see all that information coming into the market about who’s buying, when they’re buying, at what levels, how much et cetera, and Robinhood receives some fees from that, but Robinhood also, I believe, gets some action on the execution price. Now, I believe it was December 20, Robinhood was actually fined $65 million by the SEC [U.S. Securities and Exchange Commission] for receiving exorbitant fees and not getting their clients’ trades processed at the proper level.

So there is a whole other aspect going on here, but that leads to one of the other questions I have in regards to Robinhood saying [that it] can’t execute more buy orders. I will be curious to see if the person behind them who’s been processing the orders may have told Robinhood that [they’re] not going to process any more orders in the stock. I don’t know [if] that’s the case—I want to be real clear on that—but I would like to get an answer there.

Jan Jekielek: Now, that’s super interesting. Jeff, what do you make of the sort of financial punditry, as I would call it, basically saying, these platforms or the retail users of these platforms are manipulating the market, this is unfair, this needs to be regulated—in some cases, people have said it—and this is kind of an outrage. What do you make of all this?

Jeff Carlson: First off, there’s no doubt that GameStop is trading above its fundamental valuations. … There is value there at a price just based on the short alone. In other words, if you’re just approaching the situation rationally, and you look at this and if you can make a very clear case that this is ridiculous on a fundamental basis, although you might try to make a different case, that’s just my opinion that it’s ridiculous on a fundamental basis, but there is clearly real value in a very unique situation that’s ongoing right now.

It’s also worth remembering though, that that cuts both ways. What goes up can come down. When these kinds of situations unravel themselves in reverse, it can be just as volatile, maybe even more so on the downside. I just want to be real clear that I’m not encouraging one way or the other, anything here, but just noting that it is rational to understand that some of these small investors see value, if not in the fundamentals and the uniqueness of the situation that’s going on right now.

You had asked about financial pundits pounding their chests, browbeating, and saying this is terrible et cetera. It is, to me, somewhat ironic. If we step back to the financial crisis of 2008, it was the same hedge funds that were being pilloried for shorting a lot of these different companies, and it was these financial firms that ended up getting a ton of bailouts. Now, we step forward to the situation we have today and suddenly, it’s the retail investor that’s being pilloried for driving up the stock, the price, and it’s the folks doing the shorting that are not being called out as aggressively.

My own personal opinion is, my fundamental concern is that this is going to lead to increased regulation, and I firmly believe there shouldn’t be any. The situation should be allowed to play out. One of the points that I make in my article is essentially, one of the big problems here is that the party that’s to blame is the hedge funds that were not engaging in proper risk management, and these are big institutional, big-boy players to come in and bring the hammer down on the small investor, and just say that where a lot of the trading is ridiculous and you have no business trading, and the security here seems kind of high-handed to me. Effectively, that’s an external force to the market coming in and dictating what is appropriate price, what is appropriate valuation, and what is not.

That’s something that I think is really alarming. I also question a little bit the motives because the hedge funds, which are very well-connected politically and institutionally, et cetera, they’re the ones that are being hurt in this case. So to listen to financial pundits browbeat the small investor strikes me as somewhat ironic in this scenario.

Jan Jekielek: I just wanted to clarify, just in case anyone is mistaken in this way, nothing in this episode is meant to be construed as financial advice or anything remotely in that realm, but we’re just looking at it from an outside perspective.

Jeff Carlson: Maybe I should just make the statement right now. I do not own anything in GameStop. I haven’t owned anything in GameStop. I don’t plan to own anything in GameStop. I’m acting as an observer in the situation.

Jan Jekielek: And likewise, myself. Jeff, there’s a class action lawsuit that’s been launched against Robinhood once they basically created the scenario where people couldn’t buy anymore.

Jeff Carlson: That was the situation that you alluded to. We were discussing that happened on Thursday where they couldn’t make any more purchases. Additionally, I think what part of the lawsuit is also focusing on is situations where people were forced to sell, and that’s where things get a little bit more gray where it’s not entirely clear if that just happened because they needed more collateral in their accounts and didn’t have it, and those were the accounts where the sales are taking place. If so, that’s par for the course.

If an investor gets overextended or whatever and can’t put in more collateral, the brokerage firm that runs the account has the right to take action there to raise liquidity, but it doesn’t really sound like that’s what was going on in the Robinhood situation, and it sounds like in some cases, people just found that their holdings were liquidated at different levels. But again, we don’t have all the details with that, but certainly nobody began trading with the [inaudible] from Robinhood—again just one of many.

Do you have problems with Robinhood, go find another broker, open an account, and trade with them. There’s plenty of well-capitalized firms that didn’t engage in this. Regardless, if you were somebody who opened an account with Robinhood, I’m sure you didn’t do this [by] thinking that you might wake up one day and find that you weren’t, for reasons specific to Robinhood, allowed to buy more shares of the company that you were primarily playing, in this case, GameStop. I haven’t looked closely at the lawsuit, but certainly it is circling around those different factors.

Jan Jekielek: Jeff, there’s also this emotional or social element to all of this. You can’t help but notice that the financial sector is one of the few industries that’s done quite well for itself over the past year during coronavirus, or CCP virus. A lot of the retail investors are likely to be people who haven’t done as well. It’s an interesting scenario, and certainly, in the social media channels and so forth, I’ve seen a lot of people seeing this as an opportunity to get back at the big guy.

Jeff Carlson: This is a very unique situation unlike anything I’ve seen before, at least of this magnitude, and it is kind of “David versus Goliath.” There are a lot of people cheering for the retail investor, and you’re clearly seeing these large investors a bit back on the ropes. Although I would caution again, there’s a whole other group of hedge funds that I’m sure have gotten involved in the scenario and have been able to take advantage of the new pricing. They probably reset shorts up in the 300 level. It is no longer what was viewed as the retail guys, and that’s how it started out primarily—the retail guys against Wall Street. That entire pool is probably a lot more money and a lot more mingled than what it was.

It is really ironic to see some of these Wall Street firms, the hedge funds, crying foul and pointing the fingers at the small investors. As you said, this was a better year for a lot of the big firms, the so-called prime brokers. Underwriting fees were up like crazy et cetera—a very, very profitable year.

Now, these were the same companies that had gotten into incredible trouble back in the 2007, 2008, 2009 scenario when the whole financial crisis hit and they needed to get bailed out. It’s pretty ironic to see the same guys that had to come to Joe Public, Uncle Sam, for a huge amount of money just to remain in business. They’re now making record profits [and] are the ones that are crying foul at the little guy, at the individual investors.

I think it was Leon Cooperman. I saw some snippet where he said something to the effect of his guys are sitting around at home and they’re getting their checks from the government. I guess you could consider that a poorly timed comment to make. These are a lot of people that maybe simply haven’t had the opportunity to work for the last year because of the scenario we’ve been going through and have gotten very little help. They’re looking for a way to augment income, and they found a very unique situation and have been taking advantage of it.

I’m very much the kind of person who says, Let the market sort it out and have no intervention whatsoever. Whether it was intended as such or not, what Robinhood did on Thursday by not allowing incremental buys certainly served as a form of intervention because, at least temporarily, until people could open up new brokerage accounts, what have you, it took a source of demand off and resulted in a lower price for GameStock, which clearly favored the hedge fund guys who are short. A lot of moving parts here and a lot of different players, but the irony of the big guys crying foul right now is something that probably should be pointed out.

Jan Jekielek: JP Morgan, earlier this week, had named, I think, 45 different stocks that might be susceptible to this kind of a scenario where a short squeeze is possible. Is this something you expect to play out again? If it does, I guess it would be accompanied with more calls for the same kind of regulation. … What do you think?

Jeff Carlson: There’s two things there. One, a true short squeeze is rare, and yes, people will be looking for it. I think the bigger call is just going to come from the fact that folks are looking for the next play, whatever that might be. So we see another company—AMC Entertainment was one of those—but we see another one of these companies go through something similar albeit probably not as dramatic due to some of the unique qualities that surrounded the GameStop situation. Where we see another one of these situations, and you have regulators and members of Congress saying, Our financial markets are being manipulated, out of control, we need to do something. I see those comments as being somewhat one-sided.

Also, just coming from the background of the markets will ultimately figure this out. We don’t need external forces such as members of Congress coming in and being arbiters of our value. Going down that path is really the bigger concern for me, and that’s what drew me to this situation, a concern that we were going to see outside folks come in and try and put certain levels of controls on the market. In essence, that’s what the hedge funds were asking for. They wanted to have something done so that they could get protected in the face of this massive movement in the stock price.

Jan Jekielek: In your article, you refer to the Federal Reserve as an example of basically impacting the markets or having a strong effect on the markets. You criticize that.

Jeff Carlson: The way I look at the Federal Reserve, it’s got this mythical status to it. Ultimately, it’s a group of X number of individuals who get together and make prognostications on the future of the market and what they need to do, if anything, to help it out. The Fed [Federal Reserve] is notorious for pumping excess liquidity into the market.

Our recently nominated secretary of the treasury, Secretary Janet Yellen, was the Fed chair for a large number of years and frankly, the entirety of the time that she was in office, she kept real interest rates. In other words, interest rates after you remove the inflation effects kept real interest rates in negative territory, which in my opinion is more intervention than should be done by the Fed. …

I think it would be fair to say that there’s always a politicized factor that’s inherent to being a Fed chairman. Whether you can avoid it or not, that depends, but it’s there. You were appointed and you do have political pressure on you to have the markets perform.

Sometimes there can be too much liquidity puts in, which creates a situation of very easy money, which then creates a situation of excess risk taken by the market, which can lead to crashes, and that’s happened time and again. So I think you might be able to make a case that the Fed has done more harm than good throughout its history. But I was pointing fingers at the Fed, as you want to talk about a market manipulator. Inherently, that’s their job, [which] is increasing or decreasing the supply of money, from an external vantage point.

Jan Jekielek: To finish up on this whole question, I think it was $328 approximately. It was the close on Friday. I know there is still stuff happening during the weekend. What is going to happen next here?

Jeff Carlson: As far as that goes, I don’t know the answer better than anybody else. At some point, the situation will hit a resolution and things will unwind, and how violently and how quickly that happens remains to be seen.

I do worry that what we may have is increased interference in the market, and there’s already calls for doing something about what’s going on with these retail guys and putting some sort of constraints on them. You could do that by requiring that there’s a certain amount of money that’s set up to open a brokerage account. So you could say, You’ve got to have $25,000 before you can open a brokerage account, [or] you could require some sort of licensing et cetera. That will restrict that, and that’s something that I’m concerned that may spring out of this.

I’m equally concerned that as we’re going through this process, it’s an opportunity for government to make a power grab and continue to consolidate market controls at the level of the large Wall Street firms and with the government regulators. It’s dangerous when you have an outside entity say that they think that something is overvalued and then move to regulate on that belief.

The market is the ultimate arbiter of value and yes, there can be all types of external factors that can come into play in the short term. In the long term, the market always figures it out. The reality is, whether you agree with it or not, there is value to the fact that there is a short squeeze above and beyond the technical situations that are at play here.

Jan Jekielek: Jeff, you’ve been on this show a number of times before. We’ve had some great conversations but on a completely different topic. We were talking about the origins of the Crossfire Hurricane investigation. We were talking about Russiagate. We were talking about the Mueller investigation back in the day. Just recently, a certain player in all of this, Kevin Clinesmith, hit a verdict. His guilty plea has come through, and I just wanted to get you to talk about that. Give us your reaction.

Jeff Carlson: A little bit of shock and surprise, frankly. I think it’s become clear that any sort of wide-ranging scope or a pending slew of indictments, or what have you, that none of that was going to happen. But Kevin Clinesmith was an FBI lawyer and in regards to the Crossfire Hurricane in early 2017, he was a senior FBI lawyer that was assigned to this thing and was working on it. He made some knowing falsifications to emails regarding Carter Page and submitted those, and those made their way into the FISA.

While I certainly hope for a lot more than just Kevin Clinesmith, … it was very clear what had happened with him, and I had expected there to be ramifications. Instead, we found out, the judge came in and he’s Judge Boasberg, who’s actually a FISA judge. He’s also on one of the pipeline cases currently, I believe. Yesterday, he heard the case, and I think Carter Page was actually there testifying as to the impact that this took place on him, a guy who’s never been charged, didn’t do anything wrong, but got caught up in all of this, in part as a result of Clinesmith’s actions.

We know two of the four FISAs have already been deemed illegal. If they ever get to reviewing the other two, I’m sure those will be deemed illegal as well. And Clinesmith was assigned no jail time and $100 assessment. I’m not sure if it was even technically a fine, may have been considered an assessment, like for court cost, whatever. In addition too, I believe it was a year’s probation and some community service.

As somebody put it out there on Twitter yesterday—he said something to the effect, I guess this is what Spygate all comes down to—$100 fine and no prison sentence for anybody. The significance of this doesn’t lie so much with Clinesmith himself, but rather this prevailing concern amongst, I think, anybody who had been looking closely at this situation is that there’s no accountability on the government side, and this feeling that the DOJ protects its own, takes care of its own—government takes care of its own.

We could have all in the sequence, and we could have four years of investigation. You had the Clinton campaign that paid for the Steele dossier to kick this whole mess off. The resulting four-year fracas that took place with all the dislocations, you had the implementation of the Mueller Special Counsel [investigation], and at the end of all these, a bunch of people that were participants in this ended up getting high-paying jobs with the cable companies to be guest spots et cetera. And you had a lawyer who’s caught dead to rights, and he’s got a $100 fine and [a warning] don’t do that again. That’s just been really disheartening, I think, for a lot of folks.

Jan Jekielek: Jeff, any final thoughts before we finish up?

Jeff Carlson: The GameStop situation is one that’s of great interest for a variety of reasons to a lot of people. The primary interest from my perspective is one of concern to see what the government may decide to come in and do to control the situation. I don’t like that word, but that’s what they’re looking for—to control the situation, to prevent it from happening in the future. What exactly they’ll do remains unknown, but that is where my concern lies. If they take one step in that direction, what’s to prevent them from taking another step in that direction?

Jan Jekielek: Jeff Carlson, it’s such a pleasure to have you on again.

Jeff Carlson: Jan, always great talking with you. Thank you very much for having me. Good to see you.

This interview has been edited for clarity and brevity.

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