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Robinhood C.E.O. Faces Scrutiny From House Lawmakers

Vlad Tenev, the chief executive of Robinhood, apologized for temporarily limiting trading of GameStop after Jan. 28, but said his company did nothing wrong at a House Financial Services Committee hearing on GameStop.

“Jan. 28 proved to be a completely unprecedented event — the spike in trading activity and volatility meant that Robinhood securities, our clearing broker, had to hold the line and post additional firm capital as collateral to support our clearinghouse deposit demands. To put it in perspective, on Jan. 28, our daily deposit requirement was 10 times more than on Jan. 25. As a result, Robinhood securities, along with many other firms, imposed temporary trading restrictions on certain securities. Robinhood securities put the restrictions in place in an effort to meet increased regulatory deposit requirements, not to help hedge funds. We don’t answer to hedge funds. We serve the millions of small investors who use our platform every day to invest. At the end of the day, what happened is unacceptable to us — 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.” “You explain that Robinhood restricted transactions in certain securities to meet demands coming from your clearinghouse. And yet on Jan. 28, you represented to the media that there was no liquidity problem. Isn’t it true that being concerned about having enough capital to meet deposit requirements, isn’t that a liquidity problem — could you just answer yes or no?” “Chairwoman Waters, I appreciate the opportunity to address that.” “Just yes or no.” “We always felt comfortable with our liquidity, and the additional capital that Robinhood raises.” “Please answer yes or no.” “We always felt —” “I don’t have time. I just need a yes or no answer.” “I stand by my statement. The additional capital we raised wasn’t to meet capital requirements or deposits —” “Will the gentleman — I’m reclaiming my time, this liquidity problem had real consequences for your customers.” “One in 3.5 million event, basically is unmodelable. That said, we can learn from it. And in this particular case, our risk management processes work really to keep us in compliance with all of our deposit requirements and collateral requirements.” “Mr. Tenev, I realize that you are doing a full review of your practices as such. I encourage you to do that. And certainly communication with your investors is going to be key to that because you didn’t communicate with them early on.”

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Vlad Tenev, the chief executive of Robinhood, apologized for temporarily limiting trading of GameStop after Jan. 28, but said his company did nothing wrong at a House Financial Services Committee hearing on GameStop.CreditCredit…Financial Services Committee

The chief executive of the online brokerage firm Robinhood, Vlad Tenev, faced anger from members of Congress from the opening moments of the House Financial Services Committee hearing on GameStop.

As Mr. Tenev began introducing himself and his company, the chairwoman of the panel, Representative Maxine Waters, told him to get to the point and “talk directly to what happened on Jan. 28.”

Mr. Tenev apologized to his users for stopping certain customer trading during the peak of the frenzy. But Mr. Tenev was insistent that Robinhood did nothing wrong and did not privilege powerful business partners at the expense of small investors, as some critics have suggested.

“We don’t answer to hedge funds,” Mr. Tenev said. “We serve the millions of small investors who use our platform every day to invest.”

Mr. Tenev said it was forced to stop certain trading because its business partners, the clearing houses that perform trades on Robinhood’s behalf, significantly increased the requirements for the amount of money Robinhood had to park with them as collateral.

But throughout the hearing, Mr. Tenev’s answers failed to satisfy the members of the committee.

When Mr. Tenev said Robinhood is “working” for customers because they had collectively earned $35 billion in realized and unrealized gains on top of the money they had deposited, one congressman pressed Mr. Tenev to justify his claim. Representative Jim Himes, a Democrat from Connecticut, asked Mr. Tenev to provide more details on those gains — where they came from and how they were spread out among customers.

Mr. Himes asked Mr. Tenev how those returns compare to the returns customers would have seen if they had simply put their money into a diversified index fund.

But Mr. Tenev declined to answer. At first he said he didn’t have that information but later seemed to hedge by stating that the firm’s “asset under management number is not one that Robinhood has publicly shared.”

Republicans at the hearing were more sympathetic to Mr. Tenev, but they too bashed Robinhood’s communications with their customers last month. “You didn’t communicate with them early on,” said Representative Ann Wagner, Republican of Missouri.

Representative Carolyn Maloney, Democrat of New York, channeled the anger of Robinhood users even more directly.

“You reserve the right make up the rules as you go along,” she said to Mr. Tenev about Robinhood’s decision to abruptly limit trading. “I don’t blame customers for feeling treated unfairly.”

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Congressman Calls Robinhood’s Help Line and Gets Voicemail

After telling the House Financial Services Committee about the suicide of Robinhood user Alex Kearns, who died believing he had lost $730,000 on the brokerage app, Representative Sean Casten called its help line.

June 2020, Alex Kearns, who was 20 years old at the time, from Naperville, Illinois, killed himself, largely thanks to a bug in the Robinhood system. The bug was that he turned on the app, it said he owed $730,000 that he did not have, because of options positions that he thought canceled out but didn’t appear to. He called the help line. The help line, of course, was not manned, as we’ve discussed. He sent several panicked emails — three, to be precise — did not receive a response. Ultimately there was a response from the emails saying that, in fact, his positions were covered. But by that point, it was too late, because he had taken his own life. The — this is a gentleman who is 20 years old. Under Illinois law, he was not allowed to buy a beer, but he was allowed to take on $730,000 in positions and exposure that he did not have the liquidity to cover. Your mission, Mr. Tenev, is to democratize finance. But the history of financial regulation is to protect people like Alex Kearns from the system. As the old joke goes, if you’re playing poker and you can’t figure out who the fish is at the table, you should leave the table because you’re probably the fish. And there is an innate tension in your business model between democratizing finance, which is a noble calling, and being a conduit to feed fish to sharks. So I’m nervous. I think I got an exposure. And I call your help line now. Let’s call and let’s listen in the time we have remaining to what I’m going to hear on the other end of the phone. Voicemail: “Thank you for calling Robinhood. Please visit us at robinhood.com or on our app for support. If you have an urgent trading need, please make sure to include details of it when reaching out. Thanks have a great day.”

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After telling the House Financial Services Committee about the suicide of Robinhood user Alex Kearns, who died believing he had lost $730,000 on the brokerage app, Representative Sean Casten called its help line.CreditCredit…via C-Span

Representative Sean Casten dialed the Robinhood help line and let everyone listen in.

“Thanks for calling Robinhood,” a recording answered. “Please visit us at Robinhood.com or on our app for support. If you have an urgent trading need, please make sure to include details of it when reaching out. Thanks and have a great day.”

That was the end of the call.

Mr. Casten, an Illinois Democrat, wanted to point out what a distressed customer would experience if they were suddenly worried about their account. The kind of customer he was talking about was Alex Kearns, a 20-year-old college student who killed himself last summer believing that he’d lost more than $700,000. Mr. Kearns’s family has sued Robinhood over his death, saying he received inadequate customer support.

The call capped Mr. Casten’s sharp questioning of Robinhood’s chief executive, Vlad Tenev, during the House Financial Services Committee hearing over the trading flurry last month centered on shares of GameStop, a rally in which Robinhood figured heavily.

“The history of financial regulation is to protect people like Alex Kearns from the system,” Mr. Casten said.

Mr. Casten opened and closed his five minutes by talking about Mr. Kearns and did not give Mr. Tenev — who has been by far the most frequent target of questions during the hearing — an opportunity to address the suicide. Earlier in the hearing, however, Mr. Tenev said he was sorry for the family’s loss.

“The passing of Mr. Kearns was deeply troubling to me and to the entire company and we have vowed to take a series of very aggressive steps to make our options product safer for our customers,” he said.

Representative Alexandria Ocasio-Cortez said the decisions made by Robinhood’s chief executive, Vlad Tenev, had “harmed customers.”
Credit…House Financial Services Committee

Some of the most prominent progressive members on the House Financial Services Committee grilled the chief executives of the stock trading platform Robinhood and the Citadel hedge fund about their role in market volatility last month, reflecting a deep frustration with Wall Street and the broader power of major companies.

Representative Rashida Tlaib, Democrat of Michigan, pressed Kenneth C. Griffin, Citadel’s chief executive, about whether the company had opposed a tax on financial transactions. Mr. Griffin said that the firm did not support the idea, arguing that it would “injure Americans hoping to save for retirements.”

“Let’s not gaslight the American people,” Ms. Tlaib replied. “Our folks are tired of bailing you all out when you screw up and gamble with the retirement fund. And that’s exactly what happens every single moment.”

Mr. Griffin did not get a chance to respond.

Representative Alexandria Ocasio-Cortez, Democrat of New York, questioned Robinhood’s chief executive, Vlad Tenev, about the company’s explanation that it halted some GameStop trades because market clearinghouses demanded that it provide more capital given the frenzy of trading around the stock.

Saying his decisions had “harmed customers,” Ms. Ocasio-Cortez asked, “Given Robinhood’s track record, isn’t it possible that the issue is not clearinghouses, but the fact that you simply didn’t manage your own book, or failed to appropriately manage your own margin rules, or failed to manage your own internal risks?”

Ms. Ocasio-Cortez also accused Robinhood of passing on hidden costs to its customers in the form of “potentially poorer execution” or “lost rebates,” despite offering commission-free trading.

“Certainly, congresswoman, Robinhood is a for-profit business and needs to generate some revenue to pay for the costs of running this business,” Mr. Tenev said.

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‘Roaring Kitty’ Says He Will Continue to Invest in GameStop

Keith Gill, known on YouTube as Roaring Kitty and on Reddit’s Wall Street Bets forum as D.F.V., joked that he was “not a cat” and defended his GameStop investment during a House Financial Services Committee hearing.

It is true that my investment in that company multiplied in value many times. For that, I feel enormously fortunate. I also believe the current price of the shares demonstrates that I’ve been right about the company. A few things I am not — I’m not a cat. I am not an institutional investor, nor am I a hedge fund. I do not have clients. And I do not provide personalized investment advice for fees or commissions. I’m just an individual whose investment in GameStop and posts on social media were based upon my own research and analysis. Early June of 2019, the price of GameStop stock declined below what I thought was its fair value. I invested in GameStop in 2019 and 2020 because as I studied the company, I became more and more confident in my analysis. When I wrote it and spoke about GameStop on social media with other individual investors, our conversations were no different from people in a bar or on a golf course or at home talking or arguing about a stock. Hedge funds and other Wall Street firms have teams of analysts working together to compile research and analyze shares of companies. Individual investors do not have those resources. Social media platforms like Reddit, YouTube and Twitter are leveling the playing field. As for what happened in January, others will have to explain it. It’s alarming how little we know about the inner-workings of the market. And I am thankful that this committee is examining what happened. I also want to say that I support retail investors’ right to invest in what they want when they want, to support the right of individuals to send a message based on how they invest. As for me, I like the stock.

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Keith Gill, known on YouTube as Roaring Kitty and on Reddit’s Wall Street Bets forum as D.F.V., joked that he was “not a cat” and defended his GameStop investment during a House Financial Services Committee hearing.CreditCredit…House Financial Services Committee, via Associated Press

While some individual traders bought GameStop shares last month to stick it to Wall Street hedge funds, one of the most influential members of the Reddit community credited with supercharging interest in the stock stressed at the hearing that his investment was driven by analysis of the fundamental prospects for the company.

And Keith Gill — known on YouTube as Roaring Kitty and by a user name with the initials D.F.V. on Reddit’s Wall Street Bets forum — said he’d still buy GameStop at its current price.

Mr. Gill, who had bought long-shot options bets that GameStop’s shares would rise, testified that his interest in the company was based on his belief that the market was underestimating the brick-and-mortar retailer’s value as well as its potential to pivot to a digital business model.

His testimony included winking references — such as dangling what appeared to be his oft-worn red headband off a picture of a kitten visible over his shoulder — to internet meme culture.

“I am not a cat. I am not an institutional investor. Nor am I a hedge fund,” he said, in what appeared to be a reference to his YouTube persona Roaring Kitty as well as the recent viral phenomenon known as “Lawyer Cat.”

Mr. Gill didn’t attempt to explain why GameStop surged more than 600 percent in a matter of days to a peak $483 a share on Jan. 28. But he said he continues to be invested in the company.

Even though the shares have traded around $50 a share this week, they remain up more than 150 percent this year — which Mr. Gill took as vindication.

“The current price of the shares demonstrates that I have been right about the company,” Mr. Gill said.

Vlad Tenev, the chief executive of Robinhood, fielded the most questions during the House Committee on Financial Services hearing on Thursday on the GameStop trading frenzy. In the five-hour hearing, Mr. Tenev fielded more than 120 questions, more than 50 percent of all the questions asked.

Keith Gill, a young day trader who went by the screen name Roaring Kitty and found himself at the center of the GameStop stock trading frenzy, traded his usual red headband and “LolCat” T-shirt for a suit and tie as he appeared in front of the House Committee on Financial Services on Thursday morning, prepared to testify.

But he did not shed his wacky, internet-friendly image entirely. Tacked up on the wall behind him was a photo of a kitten dangling from a thread, stamped with a pithy caption: “Hang in there.”

“I am not a cat. I am not an institutional investor. Nor am I a hedge fund,” Mr. Gill said. “I do not have clients, and I do not provide personalized investment advice for fees or commissions. I’m just an individual whose investment in GameStop and posts on social media were based upon my own research and analysis.”

Other key statements from the hearing:

  • “Zero pressure from anyone,” Vlad Tenev of Robinhood said when asked whether anybody on the panel had pressured Robinhood to restrict buying of GameStop. “It was a collateral depository requirement decision made by a Robinhood securities president.”

  • “There is an innate tension in your business model, between democratizing finance, which is a noble calling, and being a conduit to feed fish to sharks,” Representative Sean Casten, Democrat of Illinois, told Mr. Tenev.

  • “If you spend any time on WallStreetBets, you’ll find a significant depth to this community exhibited by the affection its members show one another,” Steve Huffman of Reddit said.”

  • “We had no role in Robinhood’s decision to limit trading in GameStop or any of the other meme stocks,” said Kenneth C. Griffin of Citadel. “I first learned about Robinhood’s trading restrictions only after they were publicly announced.”

Sophia June, Mike Isaac and Nathaniel Popper contributed reporting.

Representative Maxine Waters said many of the investors buying GameStop shares appeared to be trying to “beat Wall Street at its own game.”
Credit…C-Span

A congressional hearing over the sudden rise and fall of GameStop’s shares last month opened with lawmakers from both parties raising concerns about how the frenzy had exposed the ways in which the financial system benefits big players rather than individual investors.

“Many Americans feel that the system is stacked against them and no matter what, Wall Street always wins,” said Representative Maxine Waters, Democrat of California and chairwoman of the committee. She noted that many of the investors buying GameStop shares appeared to be trying to “beat Wall Street at its own game.”

With many retail investors sustaining losses, she said, “there are many whose beliefs that the system is rigged against them have been reinforced.”

The committee’s top Republican, Representative Patrick McHenry of North Carolina, shared similar concerns, saying unequal access to certain types of investments had contributed to financial inequality. He said that new regulations could further shut out small investors, saying that “Americans are far more sophisticated, informed and capable than folks in D.C. give them credit for.”

“We’ve created a world where it’s easier to go buy a lottery ticket than it is to invest in the next Google,” he said. “Is it any wonder why the unhealthy dynamics of GameStop happened?”

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In a House Financial Services Committee hearing, Gabe Plotkin, founder and chief executive of the hedge fund Melvin Capital, defended his firm’s long-term strategy in betting that GameStop shares would fall.CreditCredit…Financial Services Committee

In opening remarks during a contentious Congressional hearing on Thursday afternoon, Gabe Plotkin, the founder and chief executive of the hedge fund Melvin Capital, tried to clear the air over his firm’s market bet against GameStop.

Going into 2021, the fund had “been short GameStop since Melvin’s inception six years earlier,” Mr. Plotkin told the House Financial Services Committee in a virtual hearing on the wild trading in GameStop shares that disrupted stock markets late in January.

The short position — a market term for betting that a stock price will fall — was used because Melvin believed GameStop’s business model of selling games in bricks-and-mortar stores was “being overtaken by digital downloads.” Though that overall trend had been ongoing in recent years, said Mr. Plotkin, it “generally accelerated in 2020.”

Melvin, which managed more than $12 billion at the beginning of this year, lost more than $4 billion on GameStop and other positions in January, as its performance fell 53 percent amid a 1,700 percent run-up in shares of the video game retailer.

On Jan. 25, in the midst of that rally, Melvin accepted an investment of $2.75 billion from Citadel and Point72, two other hedge funds, which was widely regarded as an emergency cash infusion. Mr. Plotkin said it was not.

“Melvin Capital was not bailed out,” Mr. Plotkin said. Instead, he said, Melvin was approached by Citadel — not the other way around — as Citadel sought to make a quick and easy investment of $2 billion in cash that it expected to generate longer-term value. “It was an opportunity for Citadel to buy low and earn returns for its investors if and when our funds value went up,” Mr. Plotkin said.

In an interview Wednesday, Kenneth C. Griffin, the chief executive of Citadel, agreed. “This was a good opportunity for us,” he said.

Jack Dorsey, left, the chief executive of Twitter; Sundar Pichai, the chief executive of Google; and Mark Zuckerberg, the chief executive of Facebook, will appear before the House Energy and Commerce Committee on March 25.
Credit…Lm Otero Jose Luis Magana/Associated Press

The chief executives of Facebook, Google and Twitter will face skeptical lawmakers again next month when a congressional committee questions them about the ways disinformation spreads across their platforms.

The House Energy and Commerce Committee said Thursday that it would hold a hearing on March 25 with Mark Zuckerberg of Facebook, Sundar Pichai of Google and Jack Dorsey of Twitter.

The committee has been examining the future of Section 230 of the Communications Decency Act, a 1996 law that shields the platforms from lawsuits over much of the content posted by their users. The attack on the Capitol on Jan. 6, which included participants with ties to QAnon and other conspiracy theories that have spread widely online, has renewed concerns that the law allows the platforms to take a hands-off approach to extremist content.

“For far too long, Big Tech has failed to acknowledge the role they’ve played in fomenting and elevating blatantly false information to its online audiences,” a group of the committee’s top Democrats said in a statement. “Industry self-regulation has failed.”

Andy Stone, a spokesman for Facebook, said the company “believes it’s time to update the rules of the internet, and this hearing should be another important step in the process.”

The House Judiciary Committee announced its own set of hearings on the tech industry on Thursday. It said it would hold multiple hearings on how to update antitrust laws to address the power of the tech giants. The committee questioned chief executives before concluding a lengthy investigation into the companies last year.

The Judiciary Committee’s first hearing will take place on Wednesday.

Days after Maryland approved the first digital advertising tax in the country, trade groups including the U.S. Chamber of Commerce and the Internet Association sued the state on Thursday, describing the measure as “a punitive assault.”

The lawsuit, which was filed in federal court in Maryland, was also backed by NetChoice and the Computer and Communications Industry Association, lobbying groups that count digital advertising giants such as Facebook and Google as members.

The tax, which has roots in European policies, won final approval on Friday in the State Senate and is expected to generate as much as $250 million for schools in its first year. The measure applies to revenue from digital ads displayed in Maryland and presaged similar efforts in states such as Connecticut and Indiana.

Facebook’s advertising sales, which make up nearly 97 percent of its revenue, surged 31 percent in the fourth quarter to nearly $27.2 billion. Google’s search advertising and ads on YouTube soared to nearly $38.8 billion over the same period, a 22 percent increase. The Maryland measure requires companies that pull in more than $15 billion a year in gross revenue to pay a 10 percent tax.

The lawsuit, which was reported earlier by The Washington Post, argued that the tax “will raise costs for consumers and make it more difficult for businesses to connect with potential customers” while “reducing resources to support the creation and availability of high-quality ad-supported content, leaving the online field overrun by low-quality ‘junk’ content.”

The suit says that the federal Internet Tax Freedom Act prohibits states from imposing “multiple and discriminatory taxes on electronic commerce,” and that the Maryland law violates the U.S. Constitution’s due process and commerce clauses.

Caroline Harris, the vice president of tax policy for the Chamber of Commerce, said in a statement that the law “represents tax policy at its worst.”

“Technology platforms have become vital instruments in the growth and success of small businesses and will become more important given the new virtual world we are working in,” she said. “In light of the current pandemic and economic uncertainty, increasing taxes on services used by small businesses to keep themselves running is a particularly poor and ill-timed policy.”

The president of the State Senate, Bill Ferguson, a Democrat who was the primary champion of the tax, said in a statement that the lawsuit was unsurprising. He added that it was “disappointing to see these companies spend millions on high-powered attorneys instead of paying their fair share,” and described the tech giants as “free riders to Maryland’s investments in our civic infrastructure.”

The scene in Austin, where many residents have been without power. Production of natural gas has stalled as a result of the low temperatures in Texas.
Credit…Ilana Panich-Linsman for The New York Times

Natural gas futures, which had jumped more than 10 percent earlier in the week, fell 5 percent on Thursday as power began to return to large parts of Texas following a bitter winter storm. Production has stalled, and demand has climbed, in recent days as a result of the freezing temperatures.

On Wednesday, Gov. Greg Abbott of Texas signed an executive order directing natural gas providers to stop all shipments of gas across state lines, ordering them to instead direct those sales to Texas power generators. Natural gas is responsible for the majority of the Texas power supply.

Oil futures also continued to feel the effects of the winter storms that have disrupted production and caused widespread power outages. West Texas Intermediate, the United States benchmark, fell nearly 2 percent to about $60 a barrel after three days of increases. It has held at or above $60 a barrel this week for the first time in 13 months.

  • Stocks on Wall Street were lower on Thursday, following declines in European and Asian stock indexes, as investors considered the latest update on the U.S. labor market. The Labor Department published its weekly report on new state jobless benefit claims, which remained stubbornly high as the labor market struggles to recover after a surge in coronavirus cases this winter.

  • The S&P 500 index fell 0.4 percent. (The fall was the third loss in three days and did not halt four consecutive days of gains, as was earlier reported here.) The tech-heavy Nasdaq dropped 0.7 percent.

  • Shares in mining companies, including Rio Tinto, BHP and Glencore, were the best performers on the FTSE 100 index. The economic recovery from the pandemic, led by Chinese growth, has meant a boom in metal prices turning into a windfall for shareholders. Rio Tinto shares were up more than 10 percent on Thursday as iron ore futures jumped more 6 percent. The miners all announced large dividend payouts this week.

An Airbus A330 aircraft operated by Lufthansa. Airbus expects to deliver the same number of aircraft this year as it did in 2020.
Credit…Felix Schmitt for The New York Times
  • The aerospace giant Airbus announced a 1.1 billion euro loss for 2020 on Thursday and warned that the industry might not recover from the disruption caused by the pandemic for two to four years, as new virus variants delay a resumption of worldwide air travel. The world’s largest plane maker eliminated its dividend for a second straight year and predicted a leveling off in deliveries of its popular commercial jets, the company’s chief executive, Guillaume Faury, said.

  • Daimler, the German car and truck maker, said Thursday that its net profit rose by nearly 50 percent in 2020, as it managed to cut costs more than enough to compensate for a decline in sales and supply chain disruptions caused by the pandemic. The company, which makes Mercedes-Benz cars, Freightliner trucks and other brands, is among traditional vehicle makers defying predictions that the pandemic would accelerate their decline into irrelevance as the industry shifts to electric vehicles.