WASHINGTON (AP) — Lawmakers in Washington are digging into the GameStop saga at a congressional hearing.
The episode has been portrayed as a victory of the little guy over Wall Street titans, but not everyone is buying it. Lawmakers from both parties are among the skeptics.
GameStop shares soared 1,600% in January before falling back to Earth. Entangled in the drama are huge short-selling hedge funds, a social media message board and ordinary investors wanting in on the hottest new trade.
The House Financial Services Committee holds a hearing Thursday. The head of the panel, Rep. Maxine Waters, D-Calif., is homing in on hedge funds, which she says have a history of “predatory short-selling.”
“We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility,” Waters said in a statement.
With short-selling, investors bet a stock’s price will drop. Defenders of the practice say it’s a tool for uncovering a stock’s true value and due-diligence investigating of companies.
The players in the hearing include a swaggering 34-year-old YouTube personality and GameStop evangelist; one of the richest and most prominent investment tycoons; and the CEO of the online platform Robinhood that hosted a tsunami of speculative GameStop trading but faced intense criticism for restricting trading at the height of the frenzy.
The CEO, Vlad Tenev, is denying speculation from some lawmakers that Robinhood acted to favor its big Wall Street clients when it blocked customers on Jan. 28 from buying shares of GameStop and a dozen other companies. The restrictions lasted in some form for days.
The accusation is that Robinhood changed the rules of the road midway through to favor big clients that stood to lose money if GameStop shares kept rising.
“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 says in written testimony prepared for the hearing. “Our customers are our top priority.”
Tenev says Robinhood imposed the trading restrictions solely to meet capital requirements set by regulators.
As they question Tenev and other witnesses, lawmakers will look for what the GameStop trading frenzy says about the fault lines and potential conflicts in the structure of the market that can hurt unsophisticated investors.
“We don’t know whether it will just be warnings versus actual findings in terms of (stock) manipulation. That’s going to take time,” Quincy Krosby, chief market strategist at Prudential Financial, said in an interview Wednesday. “It’s clear the concern is there. We’ll see how the (Biden) administration handles this.”
The online GameStop booster, Keith Gill, who goes by Roaring Kitty, plans to tell the lawmakers that he reaped a profit on his investment because he did his homework, and not because he touted the stock to “unwitting investors,” according to his prepared remarks.
“I did not solicit anyone to buy or sell the stock for my own profit,” Gill says. “I had no information about GameStop except what was public.”
Expected to testify remotely at Thursday’s hearing are:
