Wall Street hedge fund manager, CEO of Robinhood and Reddit and a YouTube streamer known as Roaring Kitty face a barbecue on Thursday afternoon from US lawmakers over Reddit rally in shares of GameStop Corp.
Some of Wall Street’s most powerful players, including billionaire Republican megadonator and Citadel CEO Ken Griffin, will make rare public statements about their companies during the congressional hearing on how Reddit users trading on retail platforms rallied to squeeze hedge funds that had invested in stocks from video game retailers and other companies.
Griffin will appear before the Democratic-led House Finance Panel with Robinhoods CEO Vlad Tenev, Melvin Capital CEO Gabriel Plotkin, Reddit CEO Steve Huffman and Keith Gill, a Reddit user and YouTube streamer known as Roaring Kitty who promoted his investment in GameStop.
The five men have been at the center of the saga, which affected Wall Street in January, leading to probes from several federal and state agencies.
Little guy wins
The episode has been portrayed as a victory for the little guy over Wall Street titans, but not everyone buys it. Legislators from both parties are among the skeptics.
GameStop shares rose 1600% in January before falling back to earth. Involved in the drama are huge short-selling hedge funds, a message card on social media and regular investors who want the hottest new trade.
Head of the Panel House Financial Services Committee, rep. Maxine Waters, D-California, is looking for hedge funds, which she says have a history of “predatory selling”.
“We need to deal with hedge funds whose unethical behavior has directly led to recent market volatility,” Waters said in a statement.
With card sales, investors are betting that the share price will fall. Defenders of the practice say it is a tool for revealing the stock’s fair value and due diligence survey of companies.
Robinhood denies changing rules to benefit large customers
Robinhood’s CEO Tenev denies speculation from some lawmakers that the platform acted to benefit its major Wall Street customers when it blocked customers on January 28 from buying shares in GameStop and a dozen other companies. The restrictions lasted in some form for several days.
The accusation is that Robinhood changed the road rules halfway to benefit large customers who lost money if the GameStop shares continued to increase.
“All allegations that Robinhood acted to help hedge funds or other special interests to the detriment of our clients are completely false and market-distorting rhetoric,” Tenev said in a written testimony prepared for the hearing. “Our customers are our top priority.”
Tenev says that Robinhood introduced the trade restrictions only to meet capital requirements set by regulators.
Wrong lines in the market structure
When questioning Tenev and other witnesses, lawmakers will look for what the GameStop trade rose says about the flaws and potential conflicts in the market structure that could hurt unsophisticated investors.
We do not know if it will only be warnings versus actual results in terms of (stock) manipulation. It will take time, says Quincy Krosby, chief marketing strategist at Prudential Financial, in an interview on Wednesday. “It simply came to our notice then. We will see how the (Biden) administration handles this. ”
Online GameStop booster, Gill, or “Roaring Kitty”, plans to tell lawmakers that he reaped the rewards of his investment because he did his homework, and not because he named the stock “reluctant investors”, according to his prepared comments.
“I did not encourage anyone to buy or sell the stock for my own profit,” says Gill. “I had no information about GameStop except what was public.”
( Jowharwith AP and REUTERS)