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The CEOs of Robinhood, Citadel, and Reddit testified before Congress as part of the review of last month’s GameStop short squeeze. Much of the testimony centered around asking clarifications as to why Robinhood ended up restricting certain stocks on its brokerage platform and the Robinhood trading app.
Robinhood Restricted Trading During GameStop Stock Surge
The virtual hearing of the House Financial Services Committee took place on Feb. 18, following the shares of GameStop, AMC, and others surge late last month based on a short squeeze strategy. It made early investors millions of dollars while hedge funds that bet against them had to lose billions.
The short squeeze strategy even went viral, resulting in the price of $GME stock rising from $20 to over $300. Meanwhile, Melvin Capital, one of the hedge funds that had shorted GameStop, was forced to take a $3 billion bailout from Citadel and Point72.
The main leader of the short squeeze strategy was a guy named Keith Gill too testified. He claimed to have turned an investment of $53,000 into nearly $50 million.
Many retail investors used the Robinhood trading app to execute their trades. However, they found themselves shut out of the rally when the app restricted purchases of the surging stocks due to volatility. Robinhood clarified that it was forced to limit purchases of certain stocks as its clearinghouse had increased capital requirements to cover the handling of the volatility of the leveraged stocks.
Robinhood CEO Apologizes to Congress
Meanwhile, rumors circulated on social media that business relationships between Robinhood and its Wall Street partners were behind the trading restrictions. Some cried market manipulation, others went even far to sue the company. The companies however have strongly denied the allegations.
However, during his testimony, Robinhood CEO Vladimir Tenev admitted that the trading company made some mistakes during the meme stock trading frenzy:
“I’m sorry for what happened. I apologize. I’m not going to say that Robinhood did everything perfect, and we haven’t made mistakes in the past, but what I commit to is making sure that we improve from this, learn from it, and we don’t make the same mistakes in the future.”