Two billionaires hedge fund managers, the 34-year-old co-founder and CEO of start-up trading app Robinhood, and a YouTube investment streamer called ‘Roaring Kitty’ voiced their defense Wednesday before a trial by lawmakers over last month’s roll call march in GameStop and other underperforming stocks.
During the rush, online retailers banded together on a Reddit forum to buy short circuits such as video game retailer GameStop and cinema operator AMC, mostly through the Robinhood trading app. The ensuing rally drove share prices into the stratosphere, forcing short sellers to buy up billions of dollars worth of shares to cover their losses, and stock prices rose further.
But during the chaos in the market, Robinhood and other trading platforms had to temporarily restrict activity on the volatile stocks, causing scientists from both parties to worry about damaging investors who could not fully participate in the market. Other investors had stocks that lost value quickly as the rally disappeared and prices plummeted again.
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While the protest was initially portrayed as an award from Wall Street Goliaths by an army of anonymous and revered Reddit and Robinhood users, data released by JPMorgan shows that institutional investors were on the run, raising questions or hedge funds have found a new way to play the market.
The House Financial Services Committee, chaired by President Maxine Waters, D-California, will certainly crack down on hedge funds and the relationship between Robinhood and its business partners on Wall Street.
“We need to deal with hedge funds whose unethical behavior has directly led to the recent volatility in the market, and we need to examine the market in general and how it has been manipulated by hedge funds and their financial partners to benefit themselves while others pay the price. , “Waters said. said in a statement.
Robinhood has already filed several lawsuits against angry customers.
“I’ve never sued anyone,” a plaintiff, Kevin Kelley, a 51-year-old football coach in Little Rock, Arkansas, told NBC Nightly News. “It’s right and wrong.”
Kelley has been buying and selling shares for 20 years, he said. He used the Robinhood app to buy shares and options in GameStop, but as the protest climbed and he was ready to sell, he found that the button he had to press was gray after Robinhood’s and other traders’ ability to limit transactions during the volatility. . Meanwhile, market sales were in full swing.
By the time he was able to trade again, he had lost about $ 3,000 instead of raising about $ 20,000.
Now he and his 24-year-old son have filed a lawsuit against Robinhood. “I want the forces to come out and re-establish that it’s safe for the retailer like me to have their trading platform,” Kelley said.
Robinhood has received rage from regulators in the past. In December, the trading platform imposed a $ 65 million fine on the Securities and Exchange Commission for failing to send clients’ orders to the broker that would best achieve it, and was insufficiently transparent about the arrangement. This week, the online platform missed an IRS deadline to provide customers with the necessary tax reporting forms.
Evidence released before the trial showed witnesses refuted the arguments they would expect on Thursday.
“The idea that I used social media to promote GameStop shares among unconscious investors is ridiculous,” said Keith Gill, the online investor known as ‘RoaringKitty’. “I was very clear that my channel was for educational purposes only, and that my aggressive investment style would probably not be suitable for most people who visit the channel.”
Vlad Tenev, the Bulgarian-American co-founder and CEO of Robinhood, will argue that every step the company took was to protect its customers and comply with all rules.
“In view of this unprecedented volatility and volume, referred to as a five-sigma event, Robinhood Securities has placed certain securities temporary restrictions to facilitate compliance with the requirement of deposit deposits,” Tenev said in ‘ a testimony that the committee released prior to the hearing, “enabling Robinhood to continue to serve its customers and comply with all trade regulations.”
Gabe Plotkin, CEO of Melvin Capital – the hedge fund that is at the heart of some Redditors bad – defends his company’s strategies.
“None of Melvin’s short positions are part of any attempt to artificially suppress or manipulate the price of a stock,” he said in a written testimony. “In the turmoil during January, GameStop’s share rose from $ 17 to a high of $ 483. I do not think anyone would claim that the price was related to the intrinsic value of the company. ‘
Joshua Mitts, a professor of corporate and security law at Columbia Law School, says Joshua Mitts, a professor of corporate and security law, should not expect much from following detailed policy recommendations.
“Congress hearings are not suitable for detailed facts and evidence,” he said in an email to NBC News.
‘There are a number of policy solutions being put forward, including improving the publicity of social media campaigns that are moving in the market,’ as Mitts and other security law professors suggested in a SEC petition, ‘but I expect that the interrogation will focus mainly on operating behavior rather than regulatory reform, ”Mitts said.
Under President Joe Biden, regulators may be looking for enforcement action if necessary. However, the time frame for such changes is usually measured in years, said Ben Koltun, director of research at Beacon Policy Advisors, an independent policy research firm for institutional investors.
“The SEC is still working on the Consolidated Audit Trail that responds to the May 2010 Flash Crash,” Koltun said.
Michela Moscufo contributed.