Politics GameStop, Reddit, and Robinhood are testifying to Congress today. Here's what to expect.
shot backwards? This hedge fund benefited from the Reddit run on GameStop shares
Participants in the #WallStreetBets movement joined forces on Reddit to collectively buy GameStop shares and thus thwart some institutional market participants. However, a hedge fund benefited precisely from this approach. © Provided by Finanz.net KAZUHIRO NOGI / AFP / GettyImages • Hegdefonds bet wins in GameStop stock rally • WallStreetBets plays Senvest Management in • "[…] we had no idea how crazy this was going to get.
- Here's everything to know ahead of today's House hearing regarding GameStop's unexpected rally.
- Committee Chair Maxine Waters said hedge funds are responsible for predatory conduct.
- Reddit may side with individual investors, while Robinhood might try to condemn hedge funds.
The House Committee on Financial Services today will grill the power players involved in last month's GameStop trading frenzy.
Hillicon Valley: Senators express concerns over response to Russian hack | Huawei makes a legal move | Twitter sees jump in user growth
Welcome to Hillicon Valley, The Hill's newsletter detailing all you need to know about the tech and cyber news from Capitol Hill to Silicon Valley. If you don't already, be sure to sign up for our newsletter by clicking HERE.Follow our cyber reporter, Maggie Miller (@magmill95), and tech team, Chris Mills Rodrigo (@chrisismills) and Rebecca Klar (@rebeccaklar_), for more coverage.A mix of big tech companies are keeping unexpected company in the news today. Top senators on the Intelligence Committee are criticizing the "disorganized" federal response to the SolarWinds hack investigation.
The CEOs of Reddit, Robinhood, Melvin Capital, and Citadel will testify following an unexpected rally of GameStop stock driven by individual investors.
Lawmakers criticized these firms after some retail investors, including members of a popular Reddit forum r/WallStreetBets, invested in GameStop to burn institutional investors who bet against the stock. The trading frenzy caused GameStop shares to surgeon January 29 and caught the attention of Elizabeth Warren, Alexandria Ocasio-Cortez, and Ted Cruz.
Here's everything to know before Thursday's hearing on GameStop:
What will members of Congress argue during the hearing on GameStop?
Though the committee did not disclose prepared remarks prior to the hearing, Rep. Maxine Waters from California, who is the committee chair, said hedge funds have a "long history" of predatory conduct by short-selling when announcing the hearing.
Tom Brady's boat and other great Bucs pics from Tampa Bay's Super Bowl parade
Tom Brady's boat and other great Bucs pics from Tampa Bay's Super Bowl parade
"We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility," Waters said in a.
Rep. Patrick McHenry (North Carolina), a ranking member of the Committee on Financial Services, toldthe Robinhood frenzy wasn't caused by "a single company or any two companies," but rather a desire for more people to get access to stock market gains.
McHenry called to "open up" regulation and laws to allow individual investors access to stock market trading.
Rep. Brad Sherman (California), who chairs the Capital Markets Subcommittee, toldhe expects the hearing to "get larger" than just the GameStop situation. He said the capital market should benefit functioning businesses rather than allowing for casino-like day trading.
Rep. Alexandria Ocasio-Cortez (New York) and Rep. Rashida Tlaib (Michigan), members of the committee, took aim at Robinhood after it temporarily restricted trading on GameStop stock, many prominent lawmakers and businesspeople accused the firm of unfairly targeting retail investors.
Wall Street regulators signal tougher approach to industry after GameStop frenzy
The Biden administration is indicating a stricter approach to Wall Street as federal prosecutors and regulators probe potential misconduct in the GameStop trading mania. Attorneys in the Justice Department's criminal division are conducting a wide-ranging investigation into possible market manipulation from the trading surrounding GameStop, and recently issued a subpoena to Robinhood as part of that, a person familiar with the matter said. The probe, though, appears to be in its early stages.
"This is unacceptable," Rep. Alexandria Ocasio-Cortez, a member of the committee, said infollowing Robinhood's decision. "We now need to know more about 's decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit."
How will Reddit, Robinhood, and other firms testifying defend themselves?
Robinhood might attract the most scrutiny for its complicated decision to block GameStop purchases at the height of the rally.
Robinhoodof GameStop shares to "help customers stay informed" amid market volatility. It later clarified that the decision was due to from clearinghouses registered with the Securities and Exchange Commission.
In his prepared testimony, Tenev said the firm has to wait several days to trades to register due to SEC rules, which he argues had led to the lack of deposit money. Tenev urged Congress to look into revising dated SEC trading rules to allow technology to make investing simpler for more people.
Five questions hanging over Thursday's GameStop hearing
The House Financial Services Committee will hold the first congressional hearing on the GameStop stock market frenzy Thursday.The list of witnesses includes Robinhood CEO Vlad Tenev, Citadel CEO Kenneth Griffin, Melvin Capital Management CEO Gabriel Plotkin, Reddit CEO Steve Huffman and Keith Gill, a prominent trader on the Reddit subforum r/WallStreetBets.Here are five key questions lingering over the upcoming hearing.Can Robinhood temper the DC outrage?Of all the players in the GameStop saga, Robinhood has evoked the most anger from lawmakers.
Meanwhile, Reddit CEO Steve Huffman appeared toin an interview with earlier this month. In his prepared testimony, he said GameStop's frenzy proved Reddit's power in attracting and organizing "everyday people.
"WallStreetBets may look sophomoric or chaotic from the outside, but the fact that we are here today means they've managed to raise important issues about fairness and opportunity in our financial system," Huffman said.
The company said the GameStop saga inspired Reddit to pay for athat commented on the situation: "One thing we learned from our communities last week is that underdogs can accomplish just about anything when they come together around a common idea," the ad read.
What will happen after the House's Congressional hearing?
Though the GameStop rally itself was short lived, the Congressional hearing suggests involvement from the firms testifying might drag on.
Robinhood users filed a class-action lawsuit against the trading app, leading the firm to its legal team.
"We hope that this House Committee will ask the right questions and require Robinhood to account for its actions," Josh Gossett, one of the plaintiffs in a class-action suit filed against Robinhood on January 29, 2021, said in a statement to Insider.
Sen. Sherrod Brown, chairman of the Senate Banking, Housing, and Urban Affairs Committee, would hold a hearing to hold Wall Street accountable for the volatile stock market. The hearing date has not yet been announced.
"Robinhood promised to democratize trading, but hid information about its prerogative to change the rules by cutting off trades without notice behind dozens of pages of legalese," Sen. Warren said in a statement on February 17. "I'm going to keep pushing regulators to use the full range of their regulatory tools to ensure the fair operation of our markets, particularly for small investors."
Fact Check: Did Representative Maxine Waters Ask About Refunds For Money Lost on Stocks? .
On February 18, the House Committee on Financial Services held a hearing on the events surrounding the GameStop trading frenzy that took place in late January. The hearing was led by Representative Maxine Waters (D-Calif.), chair of the Financial Services Committee. © Chip Somodevilla/Getty Democratic California Representative Maxine Waters, Chairwoman of the House Financial Services Committee, has pledged to "convene a hearing to examine the recent activity around GameStop" as a "first step in reining in ... abusive practices," like short-selling a way to make money off of stocks that fail.