Less than a minute after Vlad Tenev’s opening statement, Maxine Waters was already impatient with the CEO of Robinhood and knocking on the hammer.
“I want you to use your limited time to speak directly to what happened on January 28 and your involvement in it,” said the veteran California Democrat, who chairs the Financial Services Committee.
The very unusual interruption was the first sign that Tenev would be the main target for many members of the House, especially the Democrats, in the first trial of the video game retailer GameStop in January, which inflicted huge repercussions on hedge funds and resounded. . the US stock market of $ 46 tons.
Over the course of the afternoon, lawmakers questioned Tenev about its online trading platform’s business model, culture and ties with some of the biggest players on Wall Street, suggesting they clash with its outspoken mission to democratize finances and the 34-year-old repeatedly to force. old Bulgarian-born CEO in defense.
“Robinhood has been on a record of interruptions, failures in design and recently it seems that you cannot properly account for your own internal risk,” said Alexandria Ocasio-Cortez, the liberal congresswoman in New York, one of the earliest critics of Robinhood’s decision to stop trading in GameStop.
Representatives singled out Robinhood and how it became the center of the storm in January. Tenev eventually admitted that the company did not have enough cash on hand to meet a capital call from its clearing house, and apparently contradicted an earlier statement to Waters that Robinhood “always felt comfortable” with its liquidity.
“At that moment, we would not be able to pledge the $ 3 billion,” Tenev told lawmakers on Thursday.
Tenev, drafted by Ohio Republican Rep. Anthony Gonzalez, agrees that it would have been a “total disaster” if Robinhood had not been able to meet the capital call and the position of its clients had been settled.
“In a sense, I love your business very much, because it offers investment opportunities for individuals who are no longer in the market, if managed properly,” Gonzalez said. But he added that “a vulnerability was clearly exposed in your business model and perhaps in the regime that meets your requirements”.
Robinhood has become one of the newest trading platforms for Americans new to financial markets. Its rise has taken the brokerage industry by storm. It was founded less than a decade ago and now has more than 13 million customers. But Robinhood’s decision to restrict customer trade in January to protect its own business was a catalyst for a broader downsizing of the company.
Iowa’s Cindy Axne exploded on the ‘gamification’ of investments promoted by Robinhood, saying ‘everyone seemed to get involved’ when shares in GameStop and the AMC cinema chain began to rise last month. “That 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 this action.”
Axne added: “When people sign up, they get a write-off ticket to see what they get, confetti falls every time they place an order, they get a push notification. . . Why did you add specific game design elements to look like gambling in your app? ‘
But it was Carolyn Maloney, another New York congressman, who apologized to Tenev and said Robinhood feels it ‘has the right to set the rules as you go along’. “I’m sorry about what happened. I apologize, “Tenev replied.
Robinhood CEO Vlad Tenev was the focus of the largest inquiry during the hearing © House Financial Services Committee
Alexandria Ocasio-Cortez: ‘If the proceeds you make from the payment for the order flow were to remove free commissions, it would not mean that trading on Robinhood is not actually free’ © Bloomberg
Tenev also apologized to the family of Alex Kearns – the 20-year-old man who died by suicide last summer – after believing he had lost more than $ 750,000 trading options on the platform – after Missouri executive Emanuel Cleaver head of Robinhood over the tragedy. .
“Mr. Kearns’ death was very worrying for me and the whole company,” Tenev said. He added that after Kearns’ death, Robinhood made numerous changes to the platform, including the tightening of restrictions on riskier trading and the support of customers by phone for ‘acute’ options.
Robinhood’s relationship with Citadel Securities, the market maker founded by Ken Griffin, is also the general manager of the hedge fund Citadel. Tenev has repeatedly denied being put under pressure by hedge funds to restrict the trading of GameStop shares, destroying a growing rumor after Griffin’s hedge fund invested $ 2 billion in Melvin Capital, the group that is wrong by retailers.
Melvin founder Gabe Plotkin said he was “humble” after losing billions of dollars on his bet against GameStop, predicting that the hedge fund industry will have to adapt to the rise of retail investors.
“I do not think you are going to see stocks with the kinds of short interest rates we saw before this year,” he said. “I do not think investors like me want to be susceptible to this kind of dynamic.”
As expected, payment for order flow was a major topic, with several regulators questioning participants as to whether it was creating a conflict of interest. Ocasio-Cortez asked Tenev if he would be willing to pass on the proceeds to Robinhood customers, a question he tried to avoid by saying that payment for order flow enables it to offer free trade.
“If the removal of the proceeds from the payment for the order flow will result in the removal of free commissions, it does not mean that trading on Robinhood is not actually free,” Ocasio-Cortez replies.
Brad Sherman, a senior committee member, once again had a heated exchange, albeit with Griffin, over the controversial practice. Sherman has repeatedly insisted Griffin on whether the payment of Robinhood to trade to Citadel Securities really means that Robinhood customers get the best execution terms as claimed, or if Citadel prefers orders for which they do not pay.
Griffin tried to deduce other factors that play a role in the quality of execution, such as the size of the order. After several rounds back and forth, Sherman told Griffin, ‘You’re doing an excellent job of wasting my time. If you go to the filibuster, you must vote for the Senate. ‘
Steve Huffman, Reddit’s CEO and co-founder, who spoke only occasionally, was subject to the slightest grit, mainly praising the behavior of day traders on the WallStreetBets forum of the social media site and adapting himself to users . “The fact that we are here today means that they have succeeded in raising important issues of equity and opportunity in our financial system,” he said in his opening speech.
He later argued that the edgy platform’s own system of user-driven content moderation eliminated misinformation while appearing on the most compelling posts, meaning that investment advice on the platform was ‘probably one of the best’.
He also sought to take down Plotkin’s complaints from Melvin Capital, who said he was the target of anti-Semitism and racism on the platform. Huffman said Reddit’s “anti-evil” team – content moderators who police the site for harassment and other offensive speech – searched “high and low” for such activities, but found only a single comment.
Tenev was the focus of most of the investigation, but it was Keith Gill, the retailer known as ‘Roaring Kitty’, who came up with an air of justification and a touch of comedy.
After declaring himself “extremely happy” about the rise in GameStop shares he helped manage at the expense of some of Wall Street’s biggest short sellers, he said he wanted to make a few things clear to the virtually constituent legislators. make.
“I’m not a cat. I’m 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 is 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