Lawmakers from both major parties criticized Robinhood on Thursday after the California-based financial services firm announced it had restricted its customers’ ability to buy stock in GameStop and other companies whose shares have been driven up by retail investors organized online.
Robinhood announced earlier in the day that it had limited trade in GameStop and other stocks targeted by investors on the irreverent WallStreetBets Reddit forum, citing “recent volatility.”
Investors from the message board had sent shares of the video game retailer up 1,500% in recent weeks, in the process pulling off a calamitous “squeeze” for hedge funds who had bet the company’s shares would continue to slide. In a reversal, shares of GameStop tanked on Thursday after the restrictions were put in place.
Amid a clamor from lawmakers, the Democratic leaders of the House Financial Services Committee and the Senate Banking Committee said they would hold hearings.
One of the first barbs on Thursday came from Rep. Ro Khanna, D-Calif., a progressive who represents Silicon Valley, called for “more regulation and equality” in financial markets in a statement about Robinhood’s move.
“While retail trading in some cases, like on Robinhood, blocked the purchasing of GameStop, hedge funds were still allowed to trade the stock,” Khanna said.
“Instead of investing in future technologies to help America win the 21st Century, Wall Street poured billions into shorting this stock to crush this company and put workers out of business. The future of this country lies in that access and equality across every sector of our economy,” Khanna said.
Rep. Rashida Tlaib, D-Mich., a member of the Financial Services Committee, went further, calling Robinhood’s move “beyond absurd” and demanding a hearing on “Robinhood’s market manipulation.”
“They’re blocking the ability to trade to protect Wall St. hedge funds, stealing millions of dollars from their users to protect people who’ve used the stock market as a casino for decades,” Tlaib said.
Rep. Alexandria Ocasio-Cortez, D-N.Y., who also sits on that committee, said she would support a hearing if necessary, condemning Robinhood’s move as “unacceptable.”
Rep. Maxine Waters, D-Calif., the chair of the Financial Services Committee, said later on Thursday that she would hold a hearing to examine GameStop “and other impacted stocks with a focus on short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors.”
“We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility and we must examine the market in general and how it has been manipulated by hedge funds and their financial partners to benefit themselves while others pay the price,” Waters said.
Sen. Sherrod Brown, D-Ohio, the incoming chair of the Banking Committee, said Thursday that he will hold a hearing on the “current state of the stock market.”
“People on Wall Street only care about the rules when they’re the ones getting hurt,” Brown said in a statement. “American workers have known for years the Wall Street system is broken – they’ve been paying the price. It’s time for the SEC and Congress to make the economy work for everyone not just Wall Street.”
Robinhood was not the only broker to limit sales of GameStop. Interactive Brokers on Wednesday said it had placed restrictions on sales of the stock. Charles Schwab said Thursday that its customers could still trade GameStop but noted that it limited certain kinds of transactions involving more risk.
The other securities Robinhood placed restrictions on are American Airlines, AMC, BlackBerry, Bed Bath & Beyond, Castor Maritime, Express, Koss, Nokia, Sundial Growers, Tootsie Roll Industries and trivago.
The company said Thursday afternoon that it would allow purchases of some of the securities starting on Friday. The announcement sent shares of GameStop higher in extended trade.
“We’ll continue to monitor the situation and may make adjustments as needed,” the company said. “To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to.”
The anger directed at Robinhood comes as the trading in GameStop and other beaten-down companies has been heralded, on Reddit and elsewhere, as a type of populist victory against the shadowy forces of high finance.
Melvin Capital, one of the hedge funds short on the stock, said it had closed its position on Tuesday afternoon after taking a huge loss. Two firms, Citadel and Point72, infused the fund with nearly $3 billion amid the squeeze.
Robinhood, whose name recalls the mythical thief who stole from the rich to give to the poor, has stylized itself as a democratizing force in the markets.
Sen. Ted Cruz, a conservative Republican from Texas, seized on Robinhood’s branding in a post Thursday morning on Twitter. Using a bemused face emoji, Cruz posted a March 2016 tweet from Robinhood declaring, “Let the people trade,” alongside its statement announcing restrictions on GameStop and AMC.
Cruz later reposted Ocasio-Cortez’s tweet to his own page, writing, “Fully agree.”
In response, Ocasio-Cortez said that Cruz “almost had me murdered 3 weeks ago so you can sit this one out,” and called on him to resign.
Another Republican, Sen. Marsha Blackburn of Tennessee, wrote: “Free the traders on @RobinhoodApp.”
Sen. Elizabeth Warren, D-Mass., one of the leading Democrats on financial regulation, wrote Wednesday on Twitter that “For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price.”
“It’s long past time for the SEC and other financial regulators to wake up and do their jobs – and with a new administration and Democrats running Congress, I intend to make sure they do,” Warren wrote.
A spokesperson for Robinhood declined to comment on criticism the company was receiving from lawmakers, but directed CNBC to a blog post titled “Keeping Customers Informed Through Market Volatility.”
“Our mission at Robinhood is to democratize finance for all.” the post reads. “We’re proud to have created a platform that has helped everyday people, from all backgrounds, shape their financial futures and invest for the long term.”
The post says that employees of the company “continuously monitor the markets and make changes where necessary.”
So far, the White House and top officials at the major financial regulators have yet to weigh in one way or the other. Jen Psaki, White House press secretary, said Wednesday that President Joe Biden’s economic team, including Treasury Secretary Janet Yellen, is monitoring the GameStop situation.
Federal Reserve Chair Jerome Powell was pressed Wednesday on GameStop’s surging stock and said only that the central bank was not responsible for rising prices in the markets.
“I think the connection between low interest rates and asset values is probably something that’s not as tight as people think because a lot of different factors are driving asset prices at any given time,” Powell said.
The Securities and Exchange Commission said Wednesday that it was “working with our fellow regulators to assess the situation.” It declined to comment Thursday.
On the state level, New York Attorney General Letitia James, a Democrat, said on Thursday that her office was “aware of concerns raised regarding activity on the Robinhood app, including trading related to the GameStop stock.”
James said her office was reviewing the matter.
Meanwhile, in WallStreetBets, posters slammed Robinhood and celebrated their support from lawmakers while encouraging each other to hold onto their shares.
“RASHIDA IS WITH US,” a user known as MrPostmanLookatme wrote in one post that garnered more than 28,000 supportive votes.
More than 1.3 million people were actively browsing the forum, which has about 4.6 million members, on Thursday afternoon.