GameStop: U.S. lawmakers to test key Robinhood, Reddit and finance players

Frenzied trade in GameStop shares and other firms will be the focus of what is supposed to be a fiery hearing in Congress on Thursday, when US lawmakers have their first chance to challenge Robinhood, Reddit, and other participants in the saga's trading app executives.

In a first step to untangling the furore around trade in GameStop, AMC cinemas and other firms whose share prices surged to astronomical heights as small investors poured into the stocks, the House Financial Services Committee will hold a hearing at noon.

In a first step to untangling the furore around trade in GameStop, AMC cinemas and other firms whose share prices surged to astronomical heights as small investors poured into the stocks, the House Financial Services Committee will hold a hearing at noon.

The hearing, titled Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide, is expected to be fractious.

In January, shares in GameStop, a struggling video games chain store, rose 1,600 percent, when an army of small investors, many using the Robinhood trading app, seemed to have speculated that when betting the stock price would fall, Wall Street hedge funds had overplayed their hand-a tactic known as short-selling.



Spurred on by meme-toting users of the WallStreetBets Reddit group, buyers started to purchase the shares, pushing up the price and causing massive losses for some hedge funds.

By the end of January, Robinhood temporarily halted trade in GameStop and other hot stocks and prompted allegations that Robinhood and other trading platforms may have been pushed by hedge funds and others to avoid the rout.

The news managed to – briefly – unite Washington’s deeply divided political elite. Both the rightwing senator Ted Cruz and the progressive representative Alexandria Ocasio-Cortez attacked Robinhood’s decision to halt trading in GameStop by small investors.


Ocasio-Cortez sits on the bipartisan financial services committee.

Among those testifying are:

  • Robinhood’s CEO, Vlad Tenev.

  • Reddit’s CEO, Steve Huffman.

  • Gabe Plotkin, founder of the Melvin Capital Management hedge fund, which was forced into a rescue after retail traders crushed its bets against GameStop.

  • Ken Griffin, billionaire CEO of Citadel, an investment firm that executes Robinhood clients’ trades and also helped to bail out Melvin.

  • Keith Gill, a trader variously known online as Roaring Kitty and DeepValue and a longtime GameStop booster.


The hearing marks the first time the major players in the GameStop controversy have all been forced to publicly reckon with the anger the episode provoked among small investors and across the political spectrum.


Gregg Gelzinis, associate director for economic policy at the Center for American Progress, said: “The GameStop drama raised quite a few public policy questions but first it’s important for members of Congress to understand how events played out.”


There were also concerns about the sequence of events, Gelzinis said. More broadly, he said, GameStop highlighted many key issues for regulators, including the role and regulation of hedge funds, whether or how social media is used by Wall Street to drive investment strategy, the 'gamification' of trading app investment, and the economic incentives for trading platforms at play.


“What would have happened if Robinhood had failed? What would have been the knock-on effects for financial markets?” he asked. “These are huge investor protection questions.

“I saw someone on Twitter describe it as a Rorschach test for financial regulators,” he added.


The trial will not be the final investigation faced by the administrators at the heart of the dispute. According to the Wall Street Journal, federal authorities have started an investigation, and the Securities and Exchange Commission, the top financial watchdog in the United States, is apparently combing for signs of alleged manipulation via social media posts.

In the meantime, evidence has emerged that tiny investors were not GameStop's and other hot companies' biggest customers. Institutional buyers may have been behind much of the dramatic spike in the share price, according to an article by JP Morgan.


“Although retail buying was portrayed as the main driver of the extreme price rally experienced by some stocks, the actual picture may be much more nuanced,” Peng Cheng, a JP Morgan analyst, told clients in a note.





Gelzinis said the hearing on Thursday was likely to pose as many new questions as it addressed, but it was a necessary first step in recognizing the seismic investment developments outlined by GameStop.


“This is only the start of the story,” he said. “It’s clear this is not just a clear-cut small investor versus Wall Street story. It’s a fairly messy picture but hopefully by the end we can paint a clearer picture and draw up some public policy conclusions from it.”

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