The Committee on Financial Services of the United States House of Representatives has scheduled a hearing on “recent market volatility involving GameStop [Corporation (GME)] stock and other stocks.” The hearing will be held virtually, starting at 12 noon Eastern Time on Thursday, Feb. 18, 2021. Among those called to testify are Vladimir Tenev, CEO of online trading firm Robinhood Markets, Inc., and Steve Huffman, CEO and co-founder of social media community and online forum site Reddit.
The committee is chaired by Representative Maxine Waters, D-Calif. The press release announcing this hearing states: “Since becoming Chairwoman of the House Financial Services Committee, Congresswoman Waters has transformed the Committee to focus its agenda on fairness, protecting consumers and investors, and accountability for large financial institutions. She has made it a practice to call Committee hearings with CEOs of big financial institutions and companies to hold them accountable.”
- The U.S. House will hold a virtual hearing on the GameStop trading controversy on Feb. 18, 2021.
- The CEOs of Robinhood and Reddit are among those called to testify.
- Robinhood is likely to face criticism for its business practices.
Previous Statement by Representative Waters
Representative Waters released the following statement on Jan. 28, 2021, in the wake of the GameStop stock trading controversy. In it, she casts hedge funds as an enemy of ordinary American savers and investors:
“Hedge funds have a long history of predatory conduct and that conduct is entirely indefensible. Private funds preying on the pension funds of hard working Americans must be stopped. Private funds engaging in predatory short selling to the detriment of other investors must be stopped. Private funds engaging in vulture strategies that hurt workers must be stopped.
“Addressing that predatory and manipulative conduct is the responsibility of lawmakers and securities regulators who are charged with protecting investors and ensuring that our capital markets are fair, orderly, and efficient. As a first step in reining in these abusive practices, I will convene a hearing to examine the recent activity around GameStop (GME) stock and other impacted stocks with a focus on short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors.
“We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility and we must examine the market in general and how it has been manipulated by hedge funds and their financial partners to benefit themselves while others pay the price.”
Robinhood and Payment for Order Flow
In addition to singling out hedge funds for criticism, it is likely that Robinhood CEO Vladimir Tenev will face hostile questioning about his company’s actions in the GameStop affair. In particular, the committee memorandum notes that payment for order flow (PFOF) has been Robinhood’s chief source of revenue since its inception and that its decision to restrict trading in GameStop and other stocks may have been influenced by its business ties to investment firms that were caught in short squeezes on these stocks.
The committee memorandum also notes: “In December 2020, the SEC charged Robinhood with making misstatements about the firm’s receipt of payment for order flow and for failing to comply with its duty to ensure that customer trades were executed on the best possible terms. Robinhood’s failure to satisfy its best execution obligations resulted in more than $34 million in aggregate customer losses. Robinhood was censured and agreed to pay $65 million to settle the action.”
Robinhood and Gambling Addictions
In addition to concerns about the impacts of payment for order flow, the committee memorandum also notes that “some attribute the current controversy itself to ‘gamification’ of investing and to the…
Read More: Robinhood, Reddit CEOs to Testify Before Congress on GameStop