THE GameStop trading frenzy involving Robinhood, Reddit and hedge fund managers came to a head on Thursday, February 18, in a congressional hearing.
Robinhood CEO Vlad Tenev, Reddit co-founder Steve Huffman and two hedge fund managers faced questions from lawmakers on the House Financial Services Committee.
How to watch the Robinhood's congressional hearing?
The GameStop saga was caused by a group of Reddit users called WallStreetBets, who were responsible for the gaming company's stock to soar nearly 3,000 percent in January.
Robinhood's decision to halt trading in GameStop and other stocks sparked a backlash among customers, questions from lawmakers and a number of lawsuits.
Early in the hearing, Tenev apologized to Representative Carolyn Maloney (D-NY) after he was asked why the trading platform's customer agreement doesn't spell out when or why the company might restrict trading for customers.
"I'm sorry for what happened," Tenev said, adding that the company is reviewing its processes.
"I apologize. I'm not going to say Robinhood did everything perfect and we have made mistakes in the past."
Critics have slammed Robinhood's business model, claiming the company generates revenue by selling customers' stock orders to larger trading firm, including hedge funds like Citadel, whose CEO Ken Griffin will also testify.
However, the Robinhood CEO denied that his company was pressured by hedge funds to halt trading in GameStop.
"We don't answer to hedge funds," Tenev told lawmakers.
Asked if he was pressured by hedge funds as GameStop's stock soared to halt trading, Tenev said, "Zero at all."
The congressional hearing is streaming live on C-SPAN and CNBC.
Why was Robinhood sued?
Robinhood faces several lawsuits, including one in New York in which the plaintiff claimed it removed GameStop during an “unprecedented stock rise.”
The company lifted its ban on buying GameStop shares a day after the incident, but only let customers buy one share, unless they already held the stock.
Tenev has denied allegations that Robinhood intended to plummet GameStop stock for ill-intentioned reasons.
He called allegations against Robinhood a “conspiracy theory.”
“Our decision to temporarily restrict customers from buying certain securities had nothing to do with a market maker or a market participant or anyone like that putting pressure on us or asking us to do that,” Tenev told Yahoo Finance.
“It was entirely about market dynamics and clearinghouse deposit requirements, as per regulation.”
The company, designed to be an easy platform for stock traders, said it limited trading in order to meet financial obligations fueled by the trading uptick.
Who is Keith Gill, trader 'Roaring Kitty'?
Keith Gill, the trader known as Roaring Kitty on YouTube was one of the traders who helped set off the GameStop stock frenzy.
The Reddit trader was sued for securities fraud.
According to the lawsuit, Gill “incited” the rally, which was hailed as a victory of the little guys against Wall Street hedge funds that bet against GameStop and other struggling businesses.
"A few things I am not. I am not a cat. I am not an institutional investor. I am not a hedge fund," Gill told Congress in the first few moments of his testimony.
"The idea that I used social media to promote GameStop stock to unwitting investors is preposterous," said Gill’s testimony to Congress, which was published on Wednesday.
"I was abundantly clear that my channel was for educational purposes only, and that my aggressive style of investing was unlikely to be suitable for most folks checking out the channel."
Even before the stock skyrocketed, Gill claimed his GameStop trade made him a millionaire.
He eventually posted a picture on Reddit showing that a $53,000 bet on GameStop had soared in value to $48 million.
Source: Read Full Article