Retail trading was said to be a risk to markets during the GameStop saga, but the Archegos blowup has Reddit users pointing fingers back at Wall Street

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  • The hedge fund Archegos triggered $20 billion of selling Friday after failing to meet margin calls.
  • The leveraged blowup has Reddit traders questioning who the real systemic risk is to the markets.
  • Wall Street Bets and the retail-trading boom were said to be dangers to markets in the GameStop saga.
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Retail traders on Reddit’s Wall Street Bets forum took a lot of heat during the recent GameStop saga for coordinating on the forum to pump the price of their favorite stocks.

After the hedge fund Archegos’ historic blowup at the end of last week on the back of leveraged stock bets, many on the platform are pointing fingers back at Wall Street.

In January, traders on Wall Street Bets began targeting stocks with high short-interest rates in hopes of driving a short squeeze and netting quick profits. The beleaguered video-game retailer GameStop became the group’s favorite target.

After GameStop’s share price soared, US regulators eyed whether the Reddit forum and its retail-trading members were part of market manipulation. The Securities and Exchange Commission and the Commodity Futures Trading Commission began reviewing traders’ actions on forums like Reddit to see whether illicit activity took place.

European Union regulators said that the Redditors’ actions “could constitute market manipulation” and that they would monitor the situation as well.

In an interview with CNBC on February 1, Democratic Rep. Stephen Lynch of Massachusetts even argued that Reddit-fueled trading could lead to “systemic risk” in the markets.

Now that the leveraged bets of Archegos have sent a handful of stocks crashing and caused reverberations throughout the markets, Reddit traders are questioning the way they were treated by regulators and the media compared with hedge funds.

A post that garnered over 14,000 upvotes in under five hours on Monday made the Redditors’ case: “Can we just appreciate for a moment that a large multi family private office leveraged themselves to the t–s, defaulted on a margin call, and it causing a market wide sell off to the tune of tens of billions of dollars, and yet I’m the irresponsible retail idiot who’s risky trading is dangerous.”

Archegos Capital is run by Bill Hwang, a former investor at the famous fund Tiger Management. Archegos’ inability to meet margin calls forced banks into block sales of $20 billion of stock held by the firm.

The sales created a sell-off in many big names, from Baidu to Discovery, on Friday.

Many Redditors and market commentators questioned why the banks would allow Archegos to leverage its bets to such an extent given Hwang’s history: He pleaded guilty to wire fraud in 2012 after his firm, Tiger Asia, traded on nonpublic information, reaping $16 million of illicit profits in 2008 and 2009, Bloomberg reported.

Bloomberg’s report said that Goldman Sachs had Hwang on its blacklist after he was charged, but “at some point in the past two-and-a-half years, the firm changed its mind about Hwang.”

That change of heart may have allowed Hwang to leverage his bets on equities. While it’s hard to say that the Archegos turmoil has created a systemic risk to the markets, it very well could moving forward.

“The Archegos drama involves a classic mix of massive leverage, concentrated positions, derivative overlays, forced deleveraging, and distressed sales,” Mohamed El-Erian, the president of Queen’s College and the chief economic advisor at Allianz, said in a LinkedIn post. “The pain has been felt so far only in a handful of stocks … What happens next depends on remaining sales and related contagion channels.”

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Robinhood is adding more customer service representatives after Congress grilled its CEO about a lack of support lines

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Co-founder and co-CEO of Robinhood Vladimir Tenev in 2016.

  • Trading app Robinhood is expanding its live customer support following a heated Congressional hearing this month. 
  • The company said it will double the number of full-time representatives this year and expand to new areas.
  • Representatives grilled Robinhood CEO Vladimir Tenev last week after a GameStop stock trading frenzy in January.
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Stock-trading app Robinhood is expanding its live phone support and doubling the number of representatives after the company’s lack of customer assistance came under fire at a Congressional hearing last week.

In a blog post Monday, Robinhood said users will have access to “a registered financial representative” by phone to help with a broader range of issues, including account security and open or recently expired options positions. It plans to expand to more situations as well, such as trading and transfer issues. 

In doubling the number of full-time registered representatives this year, the company said it will expand to new regions to support the goal. 

“We want to make sure we’re there for customers,” the company said, “especially in time-sensitive situations.”

During a Congressional hearing on February 18, Rep. Sean Casten called the Robinhood helpline and played the company’s 12-second message that ends in a hang-up to give people a sense of the support Robinhood users receive from the company. Casten also referenced a 20-year-old trader who died by suicide after the app mistakenly showed a negative balance of $730,000. He didn’t receive an answer from the company about the canceled options on the phone or via email and died by the time the company responded, his family said. 

Representatives questioned Robinhood and CEO Vladimir Tenev for five hours regarding the company’s role in a trading frenzy focused on GameStop and other “meme stocks” in January. Tenev apologized to the Kearns family during the hearing. The company, based in Menlo Park, California, was founded to make the stock market more accessible to retail investors, but Casten claimed it takes advantage of inexperienced traders.

A company spokesperson declined to comment on the reasoning behind the expansion. 

“Millions of people are making their voices heard through the markets,” Robinhood said in its blog post. “We’re investing heavily in customer support and remain committed to improving to serve you.”

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Robinhood CEO says customers on the platform have reaped $35 billion in gains

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Vlad Tenev, co-founder and co-CEO of investing app Robinhood.

  • Robinhood CEO Vlad Tenev said the assets of his platform’s users have collectively grown by more than $35 billion.
  • Tenev was challenged on this point by lawmakers, who asked how that would compare if users invested their money differently. 
  • The CEO on Thursday defended the platform he founded in 2013 from lawmakers in a five-hour congressional hearing.
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Robinhood Markets CEO Vlad Tenev said in his testimony before Congress this week that the assets of his platform’s users have collectively grown by more than $35 billion. 

Tenev on Thursday defended the platform he founded in 2013 from lawmakers during the five-hour hearing in front of the House Financial Services Committee. It was the first of three planned hearings, which aim to investigate the main players at the center of the GameStop drama in January.

Rep. Jim Himes, a former Goldman Sachs banker, was not so convinced with Tenev’s claim. He argued that if Robinhood would not reveal how much its clients invested on the trading platform, then it would not be possible to calculate the return on their investments.

“You threw out the number of $35 billion,” Himes said. “I actually think the right comparison is: What if your clients had simply invested in an S&P 500 index fund? Would that number be more than $35 billion, or less?”

But Tenev said that the representative was making the wrong comparison.

“Congressman, with respect, I don’t think the right comparison is investing in an S&P 500 index fund,” the Robinhood CEO said. “I think the right comparison is not having invested at all and having instead spent that money.”

When pressed, this time, by Rep. David Kustoff, on the company’s controversial payment for order flow model, wherein customers’ trades are directed to third parties for execution, Tenev admitted that it was indeed Robinhood’s largest source of revenue.

Rep. Maxine Waters followed up with the same question on whether whose best interest it was that Robinhood was selling customers’ trades, which Tenev mostly avoided. Robinhood in December paid a $65 million penalty in December 2020 for “misleading” communications with customers around its payment for order flow practices.

The hearing scrutinized events that took place in January, when day traders organizing on Reddit drove up the share price of GameStop, initiating a “short-squeeze” on hedge funds that had been betting against the video game retailer. 

The stock went on a dizzying climb, only for it to come crashing back down following restrictions on the stock by Robinhood and other brokerages. The episode has drawn the attention of the Securities and Exchange Commission and other regulators. 

Others summoned to Washington to testify included Citadel chief executive Ken Griffin, Melvin Capital hedge-fund manager Gabe Plotkin, and Keith Gill, also known as Roaring Kitty, among others. However, most of the attention was directed at Tenev, who received intense questioning mainly regarding Robinhood’s business model.

Representatives blamed Robinhood for failing to protect retail investors. Some questioned whether the commission-free feature levels the playing field or leads to unsound market practices.

“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,” Rep. Sean Casten said.

Representatives from both parties agreed that short selling should be more tightly regulated, or at least more transparent.

“If we’ve learned anything from the past few weeks, it’s that these average, everyday investors are pretty darn sophisticated,” Mr. McHenry said.

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Famed Reddit trader Keith Gill has piled more money into his GameStop investment

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Keith Gill, an individual online investor in GameStop, testifies during an entirely virtual hearing of the House of Representatives Committee on Financial Services entitled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide?”

  • Keith Gill has put his money where his mouth is and purchased more shares of GameStop, according to a screenshot posted to Reddit.
  • Gill bought 50,000 shares of the video-game retailer, bringing his total common stock stake to 100,000 shares.
  • Gill explained his bullish case for GameStop stock in his testimony to Congress last week.
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Famed Reddit trader Keith Gill has increased his stake in GameStop, according to a screenshot he posted to Reddit on Friday.

Gill, who goes by Roaring Kitty on YouTube and Twitter and DeepF—ingValue on Reddit, now owns 100,000 shares of the video-game retailer, representing a double of his previous common share stake of 50,000 shares. Gill also owns call options on the stock, worth about $1.5 million as of Friday. 

In total, Gill’s current stake in GameStop, between his stock and call options, is worth about $5.5 million. Gill has already realized profits in his GameStop investment of more than $10 million. 

Gill initially invested in GameStop in June 2019, when shares were trading below $10. Last month, the stock topped out at $483 after an epic short-squeeze was sparked by members of Reddit’s WallStreetBets forum. Gill’s initial $50,000 investment in GameStop was briefly worth $48 million amid the short-squeeze frenzy last month.

Gill testified to Congress last week and explained his bullish thesis on GameStop, which is predicated on a potential turnaround in the retailer, a shift to e-commerce sales, and the renewed video game console sales cycle from Sony and Microsoft.

Shares of GameStop traded up as much as 20% on Monday.

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Former SEC Chair Jay Clayton says GameStop trading was not a pump-and-dump scheme and praises transparency from ‘Mr. Kitty’

GameStop millionaire Roaring Kitty
GameStop millionaire Roaring Kitty


Former SEC chairman Jay Clayton told CNBC on Friday that trading activity during the GameStop market frenzy was not a “pump and dump scheme,” and Thursday’s hearing demonstrated transparency from social media investors.

Clayton says the SEC will likely take a look at whether there was coordinated behavior to manipulate GameStop’s stock price that soared 1,022% during the January rally,  but “the quick answer is that “no pump and dump scheme was present. 

“The overall participation in this, it was fairly transparent what was going on here,” Clayton said. “I must admit to being entertained by Mr. Kitty. You saw that people were very transparent about what they were doing and why they were doing it, which was fairly interesting.” 

During Thursday’s hearing, Keith Gill, also known as “Roaring Kitty”, emphasized that his reasoning for buying GameStop stock and sharing his position was purely based on his belief that the company was dramatically undervalued, and he was clear explaining his fundamental case for buying GameStop to his social media followers. 

Gill told the House Financial Services Committee that he still likes GameStop’s stock and he would buy it at its current price of roughly $43. 

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GameStop tumbles 11% to its lowest level in nearly a month amid Congressional hearing

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  • Shares of GameStop slipped as much as 11% on Thursday to their lowest level since January 21.
  • On Thursday, the House Financial Services Committee held a hearing on January’s episode, hearing testimonies from  the main players at the center of the GameStop drama.
  • The stock price hit an intraday low around 3 pm ET as testimonies were still ongoing.  
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Shares of GameStop slipped as much as 11% on Thursday to their lowest level since January 21 amidst a Congressional hearing on the Reddit-fueled drama. 

On Thursday, the House Financial Services Committee held a hearing on January’s short-squeeze drama, calling on the main players at the center of the saga to testify. The virtual hearing, titled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide,” was led by the Chairwoman of the House Committee on Financial Services, Maxine Waters.

Chief executives from Robinhood, Citadel, Melvin Capital Management, and Reddit testified, as well as famed Wall Street Bets member Keith Gill, also known as Roaring Kitty.

Interactive Brokers Group Chairman and founder Thomas Peterffy on Wednesday said the country’s financial markets came “dangerously close” to collapsing during the GameStop frenzy.

“We have come dangerously close to the collapse of the entire system and the public seems to be completely unaware of that, including Congress and the regulators,” Peterffy told CNBC.

Shares of GameStop traded at $40.93 at 3:58PM E.T. on Thursday. 

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