Lawmakers from both parties slammed Robinhood and other brokerages that banned the sale of GameStop and other stocks pushed by a legion of Redditors as a way to make money while hitting hedge funds that bet on the companies to fail, CNBC reports.
The social media-driven campaign, which started on the WallStreetBets subreddit, is aimed at costing hedge funds that shorted the companies’ stock, meaning they borrowed shares to sell and buy back at a lower price at a future date while driving the price of the stock down.
The Reddit-led investors instead went on a buying frenzy, pushing the stock hundreds of percent higher, meaning that hedge funds that bet against the companies would lose billions. The plan has been working as hedge funds have pulled out of their positions to billions of dollars in losses.
But on Thursday, the investing app Robinhood and other brokerages blocked the sale of GameStop and other stocks pushed by the redittors, like AMC, Blackberry, and Nokia, citing volatility issues.
The move led to widespread condemnation and questions about whether Robinhood was helping Wall Street billionaires preserve their wealth amid a social effort to drain it and put it back into the companies.
Robinhood was forced to raise an additional $1 billion from investors after worrying that they lacked the funds needed to continue hosting the trades.
The company has since resumed trading of the stocks.
“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.”
Both parties condemn:
Lawmakers like Republican Sen. Ted Cruz and Democratic Rep. Alexandria Ocasio-Cortez agreed that Robinhood’s move was “unacceptable.”
Rep. Paul Gosar, one of the most far-right members of the House, called for the Justice Department to investigate Robinhood over “anti-competitive actions.”
House Financial Services Chairwoman Maxine Waters vowed to hold a hearing on the issue.
Rep. Rashida Tlaib, who sits on the committee, said Robinhood’s move was “beyond absurd” and called for 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.
The Securities and Exchange Commission said Wednesday it was “working with our fellow regulators to assess the situation.”
Sen. Elizabeth Warren said it was “long past time for the SEC and other financial regulators to wake up and do their jobs.”
New York Attorney General Letitia James said her office was “aware of concerns raised regarding activity on the Robinhood app, including trading related to the GameStop stock.”
She said her office was reviewing the matter.