Robinhood CEO Vlad Tenev grew up in Washington, D.C. On Thursday (Feb. 18), the Silicon Valley executive at the heart of the biggest stock market crisis since 2008 returned home to face the U.S. House of Representatives Committee on Financial Services and its chairwoman, Rep. Maxine Waters, in a hearing entitled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide.”
Undoubtedly, Tenev would have preferred a more easygoing homecoming. But it was evident from the start of the hearing that Tenev wasn’t back in his hometown to fight.
“To our customers, I’m sorry, and I apologize. Please know that we are doing everything we can to make sure this won’t happen again,” Tenev said in his opening testimony, expressing regret for placing restrictions on stocks involved in the GameStop run, despite the app’s purported mission of providing free access. Conveying contradictory sentiments, Tenev also defended the choice, stating that it was a necessary response to a “completely unprecedented event.”
“Our role, as the Financial Services Committee, is to ensure fairness in our financial markets and system, robust protections for investors, and accountability for Wall Street,” Chairwoman Waters said at the start of the hearing. “… The hearing will be an opportunity for this Committee to get the facts about the role each of the entities the witnesses represent played in the events we are examining today.”
Waters pointed to Tenev’s statements that Robinhood restricted sales to meet clearinghouse demands, but also denied having a liquidity problem. “Isn’t it true that being concerned about having enough capital to meet deposit requirements — isn’t that a liquidity problem?” she asked. “Could you just answer yes or no?” Tenev returned to his opening statement talking points several times, despite Waters’ repeated requests that he answer yes or no.
Finally, when Tenev said, “Sticking by my statement, the additional capital we raised wasn’t to meet capital requirements or deposit requirements —” Waters interrupted, “I’m reclaiming my time.”
Tenev also faced questions about the death of Alex Kearns, a 20-year-old Robinhood customer who killed himself after mistakenly believing he’d lost nearly $750,000 on the platform.
“It was a tragedy, and we went into immediate action to make sure that we made not just the most accessible options-trading product for our customers, but the safest as well,” Tenev said.
After Kearns’ death, Tenev said his company clarified its trading process and added phone-based support for customers.
The hearing’s five other witnesses represented other parties associated with the GameStop turmoil. Citadel CEO Kenneth Griffin stated in his opening remarks that Citadel was not involved in the limits Robinhood imposed, despite speculation to the contrary. Melvin Capital Management CEO Gabriel Plotkin said the same and clarified that Melvin was not bailed out by Citadel, but rather that Citadel “proactively reached out to become a new investor … It was an opportunity for Citadel to buy low and earn returns for its investors if and when our fund’s value went up.”
Reddit CEO Steve Huffman stressed that users in the r/wallstreetbets community that played a major role in running up the GameStop stock were regulated both by Reddit’s policies and by the community’s own written and unwritten rules. Keith Gill, also known as Roaring Kitty, one of the Reddit users behind the GameStop run, emphasized that he was acting as an educated citizen working on publicly available knowledge.
Given the hearing’s expansive mission, it is unsurprising that different members of Congress went after different issues at play. Some targeted how Robinhood’s stock gamification and the market access it provides potentially under-educated investors put consumers at risk. Others examined how Tenev’s suspension of trading certain stocks compromised the freedom that Robinhood supposedly offers retail investors.
Some members of Congress used their time to go after the hearing itself. Rep. Bill Huizenga called the hearing “political theater,” while Rep. Steve Sivers said, “I believe the majority is attempting to use this hearing to drive a narrative about the U.S. capital markets being rigged.” Many also expressed concerns that the hearing was being held to add new regulations, regardless of witnesses’ answers, to which Chairwoman Waters replied, “I didn’t hear anyone here today say that they were ready to pile on regulations, so let’s make sure we know that our statements are accurate.”
Rep. Brad Sherman went after Citadel Securities, demanding more transparency about how Citadel Securities profits off of retail investors, not necessarily offering the “best execution” that it is obligated to provide. Rep. Juan Vargas also went after Griffin, asking him to swear that no one at the hedge fund had contact with Robinhood regarding the restriction of trades, which he did.
Each participating member of Congress was restricted to five minutes of questioning, and clear party lines emerged in respect to questioners’ fear of or hope for additional regulations in response to the GameStop incident’s resultant market volatility. Accordingly, much of the hearing was lost to logistics and to political maneuvering. There will be opportunity for more substantive conversation in the future. As Waters clarified, “We’re going to have a series of hearings. Today is the first. There will be probably two more.”
In future hearings, questioners may come closer to the heart of the issue. They may have an opportunity to tease apart which consequences of the GameStop frenzy exposed flaws in the system and which simply demonstrated the system working as it should. Whether or not witnesses’ testimony will contribute to new market and tech regulations remains to be seen.
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