In this corner! We have Gabe Plotkin, from Melvin Capital (hedge fund that majorly shorted GameStop stocks), Vlad Tenev, CEO of Robinhood (brokerage app) and Ken Griffin, the CEO of Citadel (hedge fund involved with both companies). In the other corner, we have the House Financial Services Committee, with Congresswoman Maxine Waters and Alexandria Ocasio-Cortez, Congressman Patrick McHenry, Reddit’s CEO Steve Huffman, and Keith Gill, known as Deep F***** Value on Reddit (he’s a longtime advocate of GameStop and one of the original people to encourage others to buy their stock). The congressional hearing was addressing last months unprecedented skyrocketing and plummeting of GameStop stocks within one week.
One side of the argument is that Reddit and user Keith Gill had manipulated the stock price by generating excitement around GameStop stock. The argument is that this excitement led to driving the price to a peak of around $483. Reddit CEO Steve Huffman stated that there was an internal investigation and there was no evidence of unscrupulous activities or any signs of artificially generating excitement about GameStop or any other companies mentioned on WallStreetBets.
On the other side of the argument is the thoughts and accusations that the hedge funds, Melvin Capital and Citadel, worked directly with Robinhood to force down the price of the GameStop stocks. A little backstory, Melvin Capital is the hedge fund that engaged in majorly short-selling the GameStop stock. The hedge fund Citadel came to the rescue for Melvin Capital and made a large cash investment, reportedly around $3 billion, to essentially bail Melvin Capital out of this predicament. The problem with this is that Citadel operates and makes money by executing trades on behalf of Robinhood, along with some other retail brokers. The connection has made many people suspicious and has led to theories that Citadel pulled strings to make money on both sides of the fight.
During the height of the GameStop stock price, Robinhood disabled only the “Buy” button, but not the “Sell” button, which is argued to have caused the price of the stock to crash. This action is at the heart of the argument. Suspicions and theories about why purchases were suspended started flying around the internet, including one where Citadel and Melvin Capital pulled strings at Robinhood to disable the “Buy” button. Robinhood CEO Vlad Tenev claimed that was not the case, and that it was necessary to disable the “Buy” button due to liquidity concerns because the clearinghouses (responsible for making sure money is correctly exchanged between buyers and sellers) demanded billions of dollars in collateral from Robinhood to ensure the trades would be settled. This caused Robinhood to suspend purchases while they scrambled to gather capital for the clearinghouses.
In the end, the hearing showed that the suspicions and theories lacked substance. There was no proof of collusion between the hedge funds and Robinhood but this situation has put a spot light on brokerage apps like Robinhood and their relationships with institutional investors. Leave a comment and let me know if you think this was just business as normal or was there some unethical behavior here that needs to be further addressed.