Robinhood CEO defends actions in GameStop saga at hearing
WASHINGTON » The CEO of Robinhood defended the trading platform to Congress Thursday for its actions during the GameStop trading saga, while apologizing to customers for restricting their ability to trade at the height of the frenzy.
Members of the House Financial Services Committee questioned a panel of six witnesses appearing remotely. They asked about whether the extreme volatility in the shares of the struggling video-game retailer exposed conflicts in the market’s structure that can hurt unsophisticated investors.
The episode last month, which saw GameStop shares soar 1,600% at one point, has been portrayed as a victory for the small investor — and a number of committee members echoed that theme while warning against any measure that might deter investors from participating in the market.
Turned the heat on
But skeptical lawmakers, especially Democrats, turned the heat on witnesses Vlad Tenev, the entrepreneur CEO of Robinhood, and Ken Griffin, the CEO of Citadel Securities, a Wall Street giant that handles an estimated 25% of all U.S. stock trading. Citadel is Robinhood’s largest trading partner.
The GameStop drama “has put a maximum spotlight on institutional practices by Wall Street firms” and potential conflicts of interest, Rep. Maxine Waters, D-Calif., the head of the Financial Services Committee, said at the start of the hearing. “Many Americans feel that the system is stacked against them and no matter what, Wall Street always wins.”
Waters brusquely grilled Tenev on Robinhood’s actions on Jan. 28 when it blocked customers from buying shares of GameStop and a dozen other companies. The restrictions lasted in some form for days, and the incident fueled accusations that Robinhood changed its trading rules to favor its big Wall Street clients that stood to lose money if GameStop shares kept rising.
Waters also wanted to know if Robinhood’s close relationship with Citadel played any part in the decision to limit trading. Both Tenev and Griffin denied that Citadel had any role in the decision.
Tenev said Robinhood imposed the trading restrictions because regulators had increased capital requirements tenfold due to the spike in trading volume.
Still, aware of the investor outrage that still lingers, he apologized to Robinhood customers.
“Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us,” Tenev said. To our customers, I apologize, and please know we are doing everything we can to make sure this can’t happen again.”
Lawmakers also cited the common practice in the securities markets of payment for order flow, in which Wall Street trading firms such as Citadel pay companies like Robinhood to send them their customers’ orders for execution.
Roaring Kitty speaks
Not allowing Tenev to dominate the full spotlight, Keith Gill, the colorful YouTube personality and GameStop booster who goes by Roaring Kitty, also testified. Gill earned a handsome profit and a legion of online followers for making the case for GameStop shares on Reddit and YouTube long before the big price surge in January. Gill is known for his cat-themed T-shirts and a
bright red runner’s headband in widely followed videos.
He wore a jacket and tie for his appearance via video for the hearing — although the headband could be seen hanging on poster of a kitten with the words “Hang in There.”
Gill told the lawmakers he reaped a profit on his investment because he did his homework, and not because he touted the stock to “unwitting investors.”
“I did not solicit anyone to buy or sell the stock for my own profit,” Gill said. “I had no information about GameStop except what was public.”
Whether the new scrutiny from Washington results in tighter regulation of the securities markets is unclear, though there appears to be political momentum in that direction. The Securities and Exchange Commission, with a new chair appointed by President Joe Biden, is likely to take up the issues with an eye to crafting new rules.