GameStop Hearing: What to know
Barstool Sports founder Dave Portnoy argues retail investors lost money because 'Robinhood changed the rules on them midgame.'
Lawmakers are expected to grill the chief executive of trading app Robinhood, along with several hedge fund big wigs, about a massive disruption to the stock market led by retail investors earlier this year.
The story appeared, at first, to be a success for small retail investors who went up against the behemoths in private equity and won. But whether retail investors actually benefited the most is not as clear.
The House Financial Services Committee will host the hearing, which is expected to begin at 12 p.m. ET on Thursday.
A live webcast will be made available.
Here are some key details to know ahead of the event, titled “Game Stopped? Who wins and losses when short-sellers, social media and retail investors collide”:
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| GME | GAMESTOP CORP. | 23.00 | +0.68 | +3.02% |
Background
Individual investors banded together on social media platform Reddit to buy shares of battered gaming retailer GameStop, among several other companies.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| AMC | AMC ENTERTAINMENT | 4.38 | +0.03 | +0.69% |
| BBBY | NO DATA AVAILABLE | - | - | - |
| BB | BLACKBERRY LTD. | 2.29 | +0.03 | +1.10% |
| NOK | NOKIA OYJ | 4.71 | +0.04 | +0.86% |
Some hedge funds, like Melvin Capital Management, had shorted the stocks and therefore lost sizable amounts of cash when prices rose.
As shares of GameStop soared to unthinkable levels late last month, Robinhood implemented a temporary pause that prevented investors from trading.
GameStop shares had jumped as much as 1,600% at one point last month, but have since come back down to Earth.
After trading around $450 per share last month, the retailer was trading in the mid-$40 range on Wednesday.
AMC and Bed, Bath and Beyond were also roped into the trading frenzy.
SEN. WARREN SLAMS ROBINHOOD AHEAD OF GAMESTOP HEARING
What lawmakers want to know
Lawmakers, including progressive Democrats like Sen. Elizabeth Warren, D-Mass., have expressed outrage that Robinhood restricted retail investors from making transactions during the GameStop saga.
Robinhood has maintained that the pause in trading was necessary so that it could meet regulatory requirements – and not to benefit its hedge fund clients who were losing money. Expect lawmakers to grill witnesses about those relationships and dig for potential conflicts-of-interest. The trading app is already facing a host of lawsuits from investors who lost money while they were unable to trade.
Some lawmakers have also voiced concern about hedge funds’ short-selling practices, whereby they bet that a company’s stock price will drop in value. In order to offset losing shorts, hedge funds have to buy shares of the stock, which pushes the price up even higher – as it did with GameStop.
Meanwhile, there are also concerns that one individual investor profited from manipulative conduct after he posted on Reddit (as “Roaring Kitty”) about purchasing shares of GameStop. This is likely to lead to broader questioning about potential coordination among smaller-pocket investors on social media platforms.
Who will testify?
Thursday’s witnesses are expected to include Robinhood CEO Vlad Tenev, Citadel CEO Ken Griffin, Melvin Capital Management CEO Gabriel Plotkin, Reddit co-founder Steve Huffman, a financial regulation expert, and the individual investor known as “Roaring Kitty” on Reddit, who jumped in on GameStop early.
Citadel is one of Robinhood’s major trading partners, and it also helped out Melvin Capital Management after it suffered substantial losses.
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The outcome
It remains to be seen whether lawmakers from both sides of the aisle will identify a common problem that they could solve with agreed-upon regulation.
Tenev has called for reforms to the financial system that would prevent the type of scenario whereby it had to halt trading from happening again.