GameStop: US lawmakers to question key players in Robinhood, Reddit and finance | Business

The frenzied trading of shares of GameStop and other companies will be the subject of what is expected to be a fiery hearing in Congress on Thursday, when US politicians have their first chance to question the executives of the Robinhood, Reddit and trading app. other actors of the saga.

The House Financial Services Committee will hold a noon hearing as a first step to unravel the fury surrounding the trade of GameStop, AMC theaters and other companies whose stock values ​​have reached astronomical levels as small investors piled up in stocks.

The hearing, titled Game Stopped? Who wins and loses when short sellers, social media and retail investors collide, should be tough.

Shares of GameStop, a struggling video game store chain, climbed 1,600% in January, as an army of small investors, many of whom use the Robinhood trading app, appeared to have bet that hedge funds from Wall Street had overplayed their hand by betting on the share price. collapse – a practice known as short selling.

Encouraged by members of the Reddit WallStreetBets forum, investors continued to buy the shares, driving the price up and causing huge losses for some hedge funds.

Robinhood briefly suspended trading in GameStop and other hot stocks at the end of January and sparked allegations that hedge funds and others may have pushed Robinhood and other trading platforms to shut down the rout.

The news succeeded in – briefly – uniting Washington’s deeply divided political elite. Right-wing Senator Ted Cruz and Progressive Representative Alexandria Ocasio-Cortez attacked Robinhood’s decision to stop trading in GameStop by small investors.

Ocasio-Cortez sits on the bipartisan financial services committee.

Among the testimonies are:

• Robinhood CEO Vlad Tenev.

• Reddit CEO Steve Huffman.

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

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

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

The hearing marks the first time that the main players in the GameStop controversy have all been forced to publicly address the anger the episode sparked among small investors and across the political spectrum.

Gregg Gelzinis, associate director of economic policy at the Center for American Progress, said: “The GameStop drama has raised many public policy questions, but first it is important for members of Congress to understand how events unfolded. .

Gelzinis said there were still questions about the timeline of events. More broadly, he said, GameStop had highlighted many critical issues for regulators, including the role and regulation of hedge funds, whether or how Wall Street uses social media to drive investment strategy. , the “gamification” of investment through the trading of in-game applications and incentives for trading platforms.

“What would have happened if Robinhood had failed?” What would have been the ripple effects on the financial markets? ” He asked. “These are huge questions of investor protection.

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

The hearing will not be the last investigation facing the leaders at the center of the controversy. Federal prosecutors have launched an investigation, according to the Wall Street Journal, and the Securities and Exchange Commission, the main financial watchdog in the United States, is combing social media posts for signs of potential fraud.

In the meantime, it turned out that small investors weren’t the biggest buyers of GameStop and other hot companies. Institutional investors may have been responsible for much of the dramatic rise in the share price, according to an analysis by JP Morgan.

“While retail buying has been described as the main driver behind the extreme price rally experienced by some stocks, the actual picture may be much more nuanced,” Peng Cheng, an analyst at JP Morgan, said in a note.

Gelzinis said Thursday’s hearing is likely to raise as many new questions as it answered, but was a necessary first step in understanding the seismic changes in investing that GameStop has highlighted.

“This is just the beginning of the story,” he says. “Clearly this is not just a clear story between a small investor and Wall Street. It’s a pretty messy picture, but I hope that in the end we can paint a clearer picture and draw some public policy conclusions.