On February 18, members of the U.S. House Committee on Financial Services heard testimony from top executives involved in the GameStop stock saga. Lawmakers’ focus was Robinhood, the crypto-friendly trading platform.
At the end of January, the service halted trading in several assets amid the GameStop stock pump. The move drew criticism from investors and regulators, who suspected Robinhood of colluding with hedge fund Melvin Capital and market-maker Citadel.
During the hearings, co-founder and chief executive Vlad Tenev apologised for imposing a temporary ban on purchasing a number of securities.
“Please know that we are doing everything we can to ensure this does not happen again… I am committed to making us better. We will learn from this situation and will not repeat the same mistakes in the future,” Tenev said.
He rejected claims that the restrictions were driven by an attempt to shield hedge funds. According to him, the company relied on heightened deposit requirements. In early February, a similar explanation was provided by Tenev to Elon Musk, founder of Tesla.
The GameStop rally proved costly for large players with short positions, notably Melvin Capital — it lost 53% of capital in January. The hedge fund’s chief executive, Gabriel Plotkin, said the firm was not involved in the trading halt.
Citadel’s top executive, Kenneth Griffin, gave similar testimony. In a written statement to the committee, he emphasised that the market maker ‘played no role’ in Robinhood’s decision to restrict stock trading.
Explanations were also provided by r/WallStreetBets member Kit Gill. In a statement he rejected manipulation allegations and noted that he did not impose his view on Reddit users.
Lawmakers voiced concerns about Robinhood’s business model and its reliance on additional investments. On February 1, the service announced it had raised $3.4 billion from Ribbit Capital, CONIQ Capital, Andreessen Horowitz, Sequoia and Index Ventures.
We’ve raised $3.4 billion to invest in record customer growth. With this funding, we’ll build and enhance our products that give more people access to the financial system. https://t.co/4gcfY5PCBa
— Robinhood (@RobinhoodApp) February 1, 2021
“I believe there is an evident vulnerability in your business model,” said Representative Anthony Gonzalez.
Tenev also rejected claims that Robinhood gamifies investing and disregards risks for its users. In December 2020, similar claims against the platform were filed by the Massachusetts Secretary of the Commonwealth’s Securities Division.
“We do not treat investing as a game. We recognise that investing is serious,” the platform’s chief executive said.
The Robinhood episode prompted former BitMEX chief executive Arthur Hayes to break his silence after the CFTC’s lawsuit. In a post he urged stock-market traders to ditch brokers and stop ‘paying the system’.
As an alternative, Hayes proposed trading in the cryptocurrency market.
“Don’t lose heart — the game is a game. You just need to know which one to play to improve your financial well-being for yourself and your family,” the former BitMEX chief said.
Earlier reports from Deadline indicated Netflix planned to release a film about the showdown between Reddit’s r/WallStreetBets and Wall Street.
Earlier reports suggested that Metro-Goldwyn-Mayer acquired the rights to adapt Ben Mezrich’s forthcoming book about Reddit’s war with hedge funds.
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