Lawmakers are set to grill chief executives and a Reddit user who goes by the moniker “DeepF***ingValue” during a hearing Thursday that aims to unearth more about the GameStop stock market mania that sent Wall Street reeling late last month.
The House Financial Services Committee summoned some of the key players in the saga to testify, including Robinhood CEO Vlad Tenev, Reddit CEO Steve Huffman, Citadel LLC CEO Kenneth C. Griffin, Melvin Capital CEO Gabe Plotkin, and Reddit user Keith Gill, also known by his screen names “RoaringKitty” and “DeepF***ingValue.”
The hearing comes after an unprecedented series of events upended financial markets as an army of individual investors using do-it-yourself trading platforms such as Robinhood loosely organized on a Reddit forum and collectively sent stock for the struggling retailer GameStop soaring. GameStop shares skyrocketed some 1,600% in January, and hedge funds shorting the stock ended up losing millions when they were forced to close positions.
In the midst of the battle that seemingly pitted everyday investors against institutional Wall Street firms, however, some trading platforms including Robinhood abruptly restricted transactions on GameStop trades. The move drew immediate backlash from lawmakers on both sides of the aisle, though Robinhood later said this was not because it was trying to prevent people from buying the stock, but rather due to financial clearinghouse-mandated deposit requirements that increased amid the volatility.
The hearing, entitled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide,” is set to start at noon eastern time.
In prepared testimony, Robinhood’s Tenev is expected to talk about how the company he co-founded “changed the investing world for the better” by breaking down traditional barriers to enter financial markets.
In addition, Tenev will refute allegations that trading restrictions in the aftermath of the GameStop volatility were put in place to help hedge funds.
“I want to be clear at the outset: any allegation that Robinhood acted to help hedge funds or other special interests to the detriment of our customers is absolutely false and market-distorting rhetoric,” Tenev’s prepared testimony states. “Our customers are our top priority, particularly the millions of small investors who use our platform every day to invest for their future.”
He goes on to say, “the action we took was for one reason and one reason only: to allow us to continue to meet our regulatory deposit requirements.” Tenev then delves into how the clearing process currently operates, and advocates for real-time settlement rather than the current system which takes two days for an equities transaction to be cleared and settled by a clearinghouse.
“The existing two-day period to settle trades exposes investors and the industry to unnecessary risk and is ripe for change,” Tenev said.
Griffin, the chief executive of Citadel, echoes Tenev’s sentiments in his own prepared remarks.
“Recent events have highlighted clear opportunities to improve our markets,” Griffin states. “One takeaway is the importance of modernizing the settlement process, including shortened settlement cycles and transparent capital models. As we have seen, longer settlement periods expose firms to more risk in the time between execution and settlement, requiring higher levels of capital.”
Plotkin, the CEO of Melvin Capital — a hedge fund that took a significant loss amid the GameStop saga — is expected to say his firm had nothing to do with Robinhood’s decisions to restrict trading.
“I understand that part of the focus of this hearing is the decisions of stock trading platforms to limit trading in GameStop,” Plotkin’s prepared testimony states. “I want to make clear at the outset that Melvin Capital played absolutely no role in those trading platforms’ decisions. In fact, Melvin closed out all of its positions in GameStop days before platforms put those limitations in place.”
“Like you, we learned about those limits from news reports,” Plotkin added.
Reddit’s Huffman is expected to discuss the platform’s role in the drama and advocate for the r/WallStreetBets community.
“WallStreetBets may look sophomoric or chaotic from the outside, but the fact that we are here today means they’ve managed to raise important issues about fairness and opportunity in our financial system,” Huffman stated. “I’m proud they used Reddit to do so.”
Finally, Gill — the Reddit user many say initiated GameStop’s surge — will discuss how he touted GameStop stock as a value investment to his online base because he believed in the company.
“I am not a hedge fund. I do not have clients, and I do not provide personalized investment advice for fees or commissions,” Gill stated. “I am an individual investor. My investment in GameStop and my posts on social media were entirely my own.”
Gill ends his prepared remarks with, “In short, I like the stock. And what’s stunning is that, as far as I can tell, the market remains oblivious to GameStop’s unique opportunity within the gaming industry.”
