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Congress holds hearing into last month’s GameStop volatility

The CEO of Robinhood and hedge fund principals testified at the hearing

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Last month’s extreme stock market volatility in GameStop stock was the focus of lawmakers’ attention Thursday when some of the principals involved in the volatility were summoned before the House Financial Services Committee.

In the hot seat were Vlad Tenev, chief executive of online brokerage Robinhood Markets Inc.; Gabe Plotkin, the founder of hedge fund Melvin Capital Management LP; Steve Huffman, the CEO of the social-media platform Reddit and host to the WallStreetBets forum; Ken Griffin, the billionaire founder of the hedge fund Citadel LLC; and Keith Gill, an individual investor who acquired big positions in GameStop stock and options and called it to the attention to others on Reddit.

Members of the committee said they were trying to determine what exactly happened in late January when the stock price of GameStop and other struggling companies surged in value because traders using the Robinhood trading platform and posting messages on Reddit pushed the stock far beyond its fundamental value.

Part of the hearing focused on Robinhood’s move, in the wake of GameStop’s meteoric rise, to limit trading in the stock. Tenev used his time with lawmakers to apologize to customers for the restrictions Robinhood introduced in late January but said it was due to conditions beyond the company’s control -- specifically, that it had to comply with federal regulations.

‘Unacceptable’

"Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us," Tenev said. He said it was important for customers to know that Robinhood is "doing everything we can to make sure this won’t happen again."

In the face of pointed questions from lawmakers, the Robinhood CEO insisted that Robinhood is helping its customers to build wealth and get their financial lives under control. He said the total value of Robinhood's customers' assets exceeded the amount of money they deposited on the platform by more than $35 billion.

"While markets fluctuate, this tells me that our business model is working for everyday Americans," Tenev told the committee.

Roaring Kitty

Gill, who goes by the Reddit name of “Roaring Kitty,” told the committee he based all of his investments in GameStop on a fundamental analysis of what appeared to be the company’s declining business, carried out over at least two years.

“I continued analyzing stocks on my own time and investing my family’s funds,” he told the committee. In early June of 2019, the price of GameStop’s stock declined on worse than expected earnings, and it began trading at a deep discount, below what I thought was its fair value. I was aware from public reports that a well-known investor, Michael Burry, was interested in GameStop. Because I thought the stock was undervalued, I purchased call options on June 7, 2019.”

Lawmakers repeatedly pressed Griffin and Plotkin about their hedge funds’ relationship with Robinhood and whether institutional investors have a better deal with Robinhood than individual investors.

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