Latinx reps grill Robinhood CEO at GameStop Hearing
Reps. Alexandria Ocasio-Cortez, Chuy Garcia, Juan Vargas, Nydia Velazquez, Ritchie Torres, and Vicente Gonzalez questioned Vlad Tenev at the highly-anticipated Financial Services Hearing.
Ever since the fallout from Robinhood’s interference in allowing its users to trade GameStop stock freely, the ensuing legal consequences have been highly-anticipated.
In January, hordes of retail investors, inspired by the Reddit forum WallStreetBets and Discord groups challenged the stock market and so-called “suits,” upending the market by rallying behind the ailing video game retailer, Gamestop, among others, like AMC Entertainment, Nokia, and BlackBerry.
Tipped by investors at hedge fund Melvin Capital that were trying to short sell GameStop, app users on Robinhood, CashApp, and other app brokers drove up the price, starting a “short squeeze,” of Melvin Capital, resulting in big losses.
GameStop’s stock soared from below $20 in early January to more than $400 on the morning of Jan. 28, as an army of investors from Reddit, Discord, and Twitter went on a crusade to challenge Wall Street and hedge funds that had placed market bets that the stock would soon fall.
Then Robinhood interfered due to “volatility,” and it spurred legislators to consider legal action.
Rep. Alexandria Ocasio Cortez made it clear on Jan. 28 that the situation was “unacceptable,” after the Robinhood app restricted users ability to trade, only allowing users to close out their positions.
On Feb. 18, the highly-anticipated House Financial Services Committee gathered the heads of Robinhood, Reddit, and Gamestop to discuss the series of events.
For one portion, committee members focused on hedge fund Citadel and its “convenient” relationship with Robinood.
Melvin Capital CEO Gabe Plotkin denied reports that his firm was “bailed out” by Citadel, explaining that “Citadel proactively reached out to become a new investor, similar to the investments others make in our fund.”
He then said it was actually Citadel’s “opportunity” to buy low and expect a return for its investors in the future.
Vlad Tenev, founder of Robinhood, apologized for the situation, saying that a funding rule had forced the platform to block share purchases.
“I’m not going to say that Robinhood did everything perfect, and that we haven’t made mistakes in the past. What I commit to is making sure that we improve from this, we learn from it and we don’t make the same mistakes,” he said.
But committee members didn’t let up on their questioning, focusing on the danger to retail traders, who aren’t professionals.
Rep. Nydia Velazquez raised issues of transparency in short positions, especially from large investors and hedge funds.
Rep. Ritchie Torres (D-NY) raised questions on the Robinhood use model, stressing that the platform may become highly addictive to users by design.
“I worry about the real-world impact of Robinhood,” Torres said. “Robinhood has gaming features that seem to manipulate retail traders into making rash and reckless and potentially ruinous investments.”
The stated mission of @RobinhoodApp is the democratization of finance, but I worry that the real world impact is the democratization of financial addiction. @RobinhoodApp’s features seem to manipulate retail investors. My [email protected] during @FSCDems #GameStop hearing 1/2 pic.twitter.com/yTcJLr1LKd
— Rep. Ritchie Torres (@RepRitchie) February 19, 2021
Rep. Ocasio-Cortez pressed on transparency, suggesting that Robinhood’s “free” platform is not what it says it is.
“If removing the revenues that you make from a payment for order flow would cause the removal of free commissions," Ocasio-Cortez asked Tenev, "doesn’t that mean that trading on Robinhood isn’t actually free to begin with because you’re just hiding the costs?”
She then asked him whether he will give his customers the commission Robinhood makes of the sale of their customers’ stock trades, to which he responded “no.”
While it is yet unclear what the panel with key players will amount to, the story of Gamestop and Robinhood’s mark in the short squeeze is far from over.
Attorneys in the Justice Department’s criminal division have since launched an investigation into potential market manipulation amid the trading debacle that was late January, reports the Washington Post.
The Securities and Exchange Commission is also conducting its own investigation.