Robinhood, Citadel CEOs Grilled by Lawmakers in Wake of GameStop Saga – Robinhood Markets Inc. Chief Executive Officer Vlad Tenev offered an apology for the company’s decision to temporarily curb trading in some stocks, including GameStop Corp. , on Jan. 28 amid extraordinary volatility.
“Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us,” Mr. Tenev said after being questioned at a congressional hearing Thursday.
His apology came after House Financial Services Committee Chairwoman Maxine Waters (D., Calif.) interrupted the Robinhood CEO during his opening remarks. Her request was unusual as witnesses are allowed to make opening statements before taking questions from lawmakers.
The GameStop episode, in which a group of online traders helped send shares of the videogame retailer on a wild rally earlier this year that ultimately crashed, has raised concerns about the integrity of the U.S. stock market and the rules that govern it. The Securities and Exchange Commission and other authorities are investigating whether the saga calls for policy changes or was fueled by criminal misconduct such as market manipulation.
Thursday’s hearing, which ran over five hours, is the first of three planned by the committee, Ms. Waters said. Future hearings would likely feature representatives from the SEC and the Financial Industry Regulatory Authority, she added.
It remains to be seen whether major policy changes are on the horizon. Thursday’s hearing was billed as a fact-finding mission aimed at illuminating the GameStop drama. In addition to Mr. Tenev, lawmakers also questioned Ken Griffin, the billionaire CEO of Chicago-based hedge fund Citadel LLC and market-making giant Citadel Securities, as well as Keith Gill, the once-anonymous trader who led the hordes of individual investors into GameStop under the online alias “Roaring Kitty.”
Mr. Gill stressed in his congressional testimony that he isn’t a professional investor and doesn’t provide investment advice in exchange for fees. He also told lawmakers, “I’m not a cat.”
Lawmakers took different positions on the implications of the trading frenzy that emerged on message boards surrounding GameStop and several other popular stocks that have seen sharp rallies. Democrats focused questions for Mr. Tenev on whether Robinhood’s simplified app and commission-free business model helps or hurts individual investors. Several Republicans praised the executives for helping to lower transaction costs for small traders and called for less regulation of Wall Street.
“There is an innate tension in your business model between democratizing finance, which is a noble calling, and being a conduit to feed fish to sharks,” Rep. Sean Casten (D., Ill.) observed.
Several Republican legislators accused their colleagues of using the hearing to push for more regulation. In his opening remarks, North Carolina Rep. Patrick McHenry, the top Republican on the committee, criticized prohibitions on small investors participating in private markets, where SEC disclosure rules don’t apply.
“If we’ve learned anything from the past few weeks, it’s that these average, everyday investors are pretty darn sophisticated,” Mr. McHenry said.
Lawmakers from both sides of the aisle came together on the issue of whether short selling should be subject to greater regulation. Rep. Nydia Velázquez (D., N.Y.) and Rep. Blaine Luetkemeyer (R., Mo.) both addressed the subject, with Ms. Velázquez saying she believed short selling hurts ordinary investors and families.
Investors who have taken a stake of 5% or more in a U.S.-listed company are required to disclose their positions. Ms. Velázquez asked hedge-fund manager Gabe Plotkin of Melvin Capital Management if he would support such a regulation for short selling. Mr. Plotkin sidestepped the question, saying it wasn’t a matter for him to decide, “but if those are the rules, I’ll certainly abide by them.”
