Less than a minute after Vlad Tenev’s opening statement, Maxine Waters was already impatient with Robinhood’s chief executive and was hitting the hammer.
“I would like you to use your limited time to speak directly about what happened on January 28 and your involvement in it,” said the veteran California Democrat who chairs the House’s financial services committee.
The very unusual interruption was the first sign that Tenev would be the main target for many House members, especially Democrats, at the first hearing on trading at video game retailer GameStop in January, which inflicted deep losses on hedge funds and generated reverberations. $ 46 trillion stock market.
Throughout the afternoon, lawmakers questioned Tenev about the business model, culture and ties of his online trading platform with some of the biggest players on Wall Street, suggesting that they clashed with his stated mission to democratize finance and repeatedly force the old Bulgarian executive on the defensive.
“Robinhood has been involved in a history of interruptions, project failures and, more recently, what appears to be a failure to properly account for his own internal risk,” said Alexandria Ocasio-Cortez, the liberal New York congresswoman who was one of the first criticisms of Robinhood’s decision to stop trading on GameStop.
Representatives chose Robinhood and how he became the center of the storm in January. Tenev finally admitted that the company did not have enough money on hand to answer a capital call from its clearinghouse, apparently contradicting a previous statement to Waters that Robinhood “always felt comfortable” with his liquidity.
“At that time, we could not deposit the $ 3 billion in guarantee,” Tenev told lawmakers on Thursday.
Attracted by Anthony Gonzalez, the Republican representative for Ohio, Tenev agreed that it would have been a “total catastrophe” if Robinhood had failed to respond to the capital call and faced liquidation of his clients’ positions.
“In a way, I love your company because, when managed properly, it offers investment opportunities for people who currently do not have access to the markets,” said Gonzalez. But he added that “a vulnerability has been clearly exposed in its business model and perhaps in the regime that governs its threshold requirements”.
Robinhood has become one of the preferred trading platforms for Americans new to the financial market. His rise reached the assault brokerage sector. Founded less than a decade ago, it now has more than 13 million customers. But Robinhood’s decision to restrict negotiations with customers in January to help protect his own business proved to be a catalyst for broader crackdown on the company.
Cindy Axne, from Iowa, criticized Robinhood’s investment “gamification”, saying that “everyone seemed to get involved” when stocks started to rise on GameStop and the AMC cinema network last month. “This includes people like my nephew and his two friends who stayed up until four in the morning to see if they could get a piece of that action.”
Axne continued: “When people sign up, they get a scratch off ticket to see what they get, confetti falls every time they place an order, they get push notifications. . . Why did you add specific game design elements to make your app look like a game of chance? “
But it was Carolyn Maloney, another New York congressman, who made Tenev apologize, saying that Robinhood felt he had “the right to make the rules as you go along.” “I’m sorry for what happened. I apologize, ”replied Tenev.
Vlad Tenev, chief executive of Robinhood, was the focus of most of the vote at Thursday’s hearing. © House Financial Services Committee
Alexandria Ocasio-Cortez: ‘If removing your receipts from the payment of the order flow would cause the removal of free commissions, that does not mean that trading at Robinhood is not really free’ © Bloomberg
Tenev also apologized to the family of Alex Kearns – the 20-year-old man who died of suicide last summer after believing he had lost more than $ 750,000 in trading options on the platform – after Emanuel Cleaver, from Missouri, lobbied the chief executive of Robinhood on the tragedy.
“Mr. Kearns’s passing was deeply disturbing for me and the entire company,” said Tenev. He added that Robinhood made several changes to the platform after Kearns’s death, including stricter restrictions on riskier trading and the addition of live support for telephone customers for “acute” options.
Also under scrutiny was Robinhood’s relationship with Citadel Securities, the market maker founded by Ken Griffin, who is also the chief executive of the Citadel hedge fund. Tenev has repeatedly denied that he was pressured by hedge funds to limit GameStop stock trading, drowning out a rumor that proliferated after Griffin’s hedge fund invested $ 2 billion in Melvin Capital, the group mistreated by retail traders.
Melvin’s founder, Gabe Plotkin, said he was “humiliated” after losing billions of dollars in his bet against GameStop and predicted that the hedge fund industry would have to adapt to the rise in retail investors.
“I don’t think you will see stocks with the interest rates sold that we saw before this year,” he said. “I don’t think investors like me want to be susceptible to this type of dynamic.”
As expected, payment by order flow was a big topic, with several regulators questioning participants whether this creates a conflict of interest. Ocasio-Cortez asked Tenev if he would be willing to pass on the profits to Robinhood’s customers, an issue he tried to avoid by saying that payment for the order flow allowed it to offer free trade.
“If removing the revenue you make from payment to the order flow would cause the removal of free commissions, that does not mean that trading at Robinhood is not really free,” replied Ocasio-Cortez.
Brad Sherman, a senior member of the committee, had another heated discussion, albeit with Griffin, about the controversial practice. Sherman has repeatedly pressured Griffin about paying Robinhood to direct negotiations to Citadel Securities really means that Robinhood’s clients get the best execution terms as alleged, or if Citadel favors orders for which it doesn’t pay.
Griffin tried to shift to other factors that play a role in the quality of the execution, such as the size of the order. After several rounds of coming and going, Sherman said to Griffin: “You are doing a great job wasting my time. If you are going to the obstruction, you must run for the Senate. “
Subject to minimal questioning was Steve Huffman, chief executive and co-founder of Reddit, who spoke only occasionally, mainly to praise the behavior of day traders on the social media site WallStreetBets forum, aligning with users. “The fact that we are here today means that they have managed to raise important questions about justice and opportunity in our financial system,” he said in his opening speech.
He later argued that the bold platform’s user-oriented content moderation system itself naturally eradicated misinformation while presenting the most compelling posts, meaning that investment advice on the platform was “probably among the best”.
He also tried to ignore Plotkin’s complaints from Melvin Capital, who said he was the target of anti-Semitism and racism on the platform. Huffman said the Reddit “anti-evil” team – content moderators who police the site for harassment and other rule-breaking speeches – searched “top to bottom” for such activity, but found only a single comment that it withdrew .
Although Tenev was the focus of most of the scrutiny, it was Keith Gill, the retailer known as “Roaring Kitty”, who came in with an air of vengeance and a touch of comedy.
After declaring himself “enormously fortunate” with the appreciation of GameStop’s stock that helped boost at the expense of some of Wall Street’s biggest short sellers, he said he wanted to make some things clear to lawmakers practically assembled.
“I am not a cat. I am not an institutional investor, nor am I a hedge fund, ”he said. “I’m just an individual whose investment in GameStop and social media posts were based on my own research and analysis.” Gill concluded his statement with his signature line: “I like the stock.”
By James Politi in Washington, Eric Platt, Ortenca Aliaj, Colby Smith and Aziza Kasumov in New York and Hannah Murphy and Miles Kruppa in San Francisco