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House GameStop Hearing dives into Robinhood, Reddit and WallStreetBets – Deadline

Vlad Tenevfounder of retail stock trading app Robin Hoodtold a House committee Thursday that “the financial system should be open to everyone,” including frenzied buyers of GameStop and AMC Entertainment whipped by a Reddit chat.

He profusely apologized that a funding rule forced the app to subsequently block stock purchases – a temporary restriction that was the focus of today’s five-hour hearing. Stocks plummeted and some Robinhood users lost their shirts.

Tenev was testifying before the House Financial Services Committee alongside the CEO of a hedge fund that made a killing on GameStop (Kenneth Griffin, Citadel LLC) and another that lost big in a short time (Gabriel Plotkin, Melvin Capital). Individual investor Keith Gill, known as Roaring Kitty from his YouTube videos and Reddit posts, bought GameStop and bragged about it on the colorful Reddit site. WallStreetBets chat. He agreed with lawmakers that the stock “got a bit ahead of itself” when it hit $483 from a 52-week low of $2.57. Gill but swore that his “messages did not cause the movement of billions of dollars in GameStop stock”. He made money but feels for investors who got out too late.

Rounding out the list of witnesses, Reddit CEO and co-founder Steve Huffman said that WallStreetBets “may seem sophomoric or chaotic from the outside, but the fact that we’re here today means it’s been successful. to raise important questions about fairness and opportunity in our financial system. I’m proud that they use Reddit to do this. He said no bots or foreign agents encouraged the purchase of GameStop , AMC Entertainment or other stocks and sees nothing wrong with anonymous users exchanging investment advice.

The morality/financial bait game was lawmakers’ first shot at bringing out the good, the bad and the ugly in a business phenomenon that rocked Wall Street. It has been called a populist uprising, led by individual day traders, not funds or large institutions. A growing number of related film and television projects are underway.

Committee members were there to determine what happened, how and why and to raise questions, such as whether financial markets are broken (consensus: no), whether new regulation is needed (maybe) and what type (still uncertain). The material is complex, and committee chair Maxine Waters (D-CA) said today’s hearing is likely to be the first of three. The SEC will also investigate the trading frenzy when President Biden’s pick for commission chairman Gary Gensler sits.

Lawmakers alternately praised and (mostly) criticized an unflappable, soft-spoken Tenev, who said he emigrated from an economically broken Bulgaria with his family at the age of 5 and “benefited from everything the America has to offer”. Robinhood has 15 million customers. It and similar apps are commission-free and allow people to invest small amounts, opening the market to stock pickers who are younger, more diverse and less wealthy than traditional stock investors. Its users flooded the circuits buying GameStop and a handful of other heavily shorted stocks last month.

But on January 28, amid the turmoil, Robinhood temporarily banned such stock purchases, angering customers who said the company threw them under the bus. Tenev flatly denied accusations that he was in cahoots with funds that sold the stock short. The restrictions were necessary “to meet regulatory requirements and not to protect hedge funds”, he said. Griffin of Citadel also denied coordination. Robinhood uses Citadel to process customer transactions.

Tenev said financial regulations require him to have the capital or collateral to cover trades, which take two days to settle (a lag he would like to change and regulators could consider). He said the scale of what happened was impossible to anticipate. “It was a 1 in 3.5 million event. One that had never been seen before. We had to follow the rules of the art in accordance with our regulatory and capital requirements.

Robinhood raised $3.2 billion, cleared trading to resume and said it now has a cash cushion and better controls in place to ensure this doesn’t happen again. He kind of admitted for the first time that the company had been at a major stalemate. Previously, he said the fundraising was preemptive and there was no shortage of cash. A group of lawmakers — including an incisive AOC — blamed the cabinet for, at best, miscalculating and being ill-prepared.

Others had bigger doubts about Robinhood’s mission, creating a real push and pull around the concept of “democratizing” investing.

Rep. Ritchie Torres (D-NY) worried that a free trading app like Robinhood would be as addictive as any video game. Rep. Cindy Axne (D-IA) called buying stocks with little or no information or data the same as gambling. “Playing the stock market isn’t really a solution to inequality. People have access to it, that’s good, but if they don’t have the money to invest, it’s not really democratization.

WallStreetBets users were urged to buy stocks in order to nail the big hedge funds that were short on GameStop and AMC – meaning the companies had made a financial bet that stocks would fall and take a hit if they rose to the place.

So what, Rep. Tom Emmer (R-MN) said. “It was driven by people’s desire to make money. I don’t see what’s wrong with that, even if it’s fueled by a desire to stick with a hedge fund they don’t like,” he said. “We need more people to have the opportunity to develop their financial literacy. To grow their wealth.

Audience focused almost solely on GameStop. AMC’s gains were relatively more limited, but still hit a high of over $20 from a 52-week low of less than $2. On Thursday, GameStop and AMC closed at $40.69 and $5.51 respectively.

Gill, the son of a truck driver and a nurse from Brockton, MA, refuted the characterization of retail investors as ignorant. He became interested in the scholarship after graduating from college in 2009 and struggled to find a job. “I studied, I learned,” the WallStreetBets favorite told lawmakers, some skeptical. He thought the stock was undervalued. “The market underestimated the prospects for its traditional business and overestimated its risk of bankruptcy. I grew up shopping at GameStop and I still shop there. But, “The idea that I used social media to promote GameStop stock to unwitting investors and influence the market is nonsense.”

Huffman defended Section 230, which gives Reddit the right to retain its content, and user anonymity. “The fact that Reddit doesn’t require people to reveal their own identities is what makes Reddit work. WallStreetBets wouldn’t work [otherwise] because people reveal gains and losses, their financial situation.

Hollywood has found the saga compelling and less than a month after the story exploded, at least half a dozen projects are in the works.

Netflix is ​​in talks to make it into a movie that Mark Boal is in negotiations to write and Noah Centineo to be attached to play a major role. The streamer doubles down on GameStop with a new documentary series from Emmy and Oscar-winning filmmakers Dan Cogan and Liz Garbus. Too, MGM acquired the rights to Ben Mezrich’s book proposal The Anti-Social Network; WallStreetBets Founder Jamie Rogozinski Reportedly Sold His Life Story to RatPac Entertainment; and XTRthe company behind You can’t kill David Arquette and Bloody nose, empty pocketsteamed up with directors Chris Temple and Zach Ingrasci on a feature documentary. Console Wars director Jonas Tulis began production on a feature-length documentary chronicling the Reddit-fueled frenzy with the production of Submarine.

A Betting on Wall Street post today, Keith Gill featured:

He said it ! from wallstreetbets