House Financial Services held its hearing on Reddit’s GameStop short squeeze

Weeks after Reddit community r/WallStreetBets shitposted GameStop stock up to more than $400 a share, the House Financial Services Committee pulled all of the major players in for questioning on Thursday.

The hearing featured:

• Robinhood CEO Vlad Tenev, whose commission-free brokerage platform made WallStreetBets’ GameStop short squeeze possible — well, until it didn’t, and the app froze all meme trading for hours, angering both the meme traders, lawmakers, and regulators, creating the conditions for our hearing today!
• Reddit CEO Steve Huffman, who, in his opening remarks, basically just explained what Reddit is, providing a dictionary-style definition of “subreddits” for lawmakers. After that, he didn’t say much else. No one was asking him questions!
• Keith Gill, better known by his Reddit pseudonyms, RoaringKitty and u/DeepFuckingValue, who rather than donning his infamous red headband, hung it behind him next to an inspirational poster of a cat encouraging us all to “Hang in there.”
• And Kenneth C. Griffin and Gabriel Plotkin, CEOs of Citadel and Melvin Capital, respectively. We’re not going to talk about them too much.

Robinhood was clearly the focus. The company’s app facilitated the r/WallStreetBets January GameStop squeeze until, as Tenev puts it, the company couldn’t any longer. At the height of the meme-trading frenzy, Robinhood pulled the plug on popular stocks like GameStop and AMC, prompting lawmakers like Rep. Alexandria Ocasio-Cortez (D-NY) to call for this hearing to investigate the company’s relationships with hedge funds.

At Thursday’s hearing, Tenev tried to dispel those rumors. “We don’t answer to hedge funds,” he said. “We serve millions of small investors who use our platform every day to invest.”

Throughout the hearing, Tenev assured lawmakers that Robinhood had to halt meme stock trading because its business partners — the clearinghouses that actually perform the trades — bumped up how much money it would cost the company to finish them out.

Tenev apologized for pausing those trades and promised to do better in the future — typical remarks from a congressional witness in the hot seat.

WHAT IT MEANS

For a hearing investigating what happens when a bunch of Redditors disrupt the US financial markets, social media’s role in the GameStop squeeze wasn’t really a major part of Thursday’s hearing. But for the lawmakers focused on the internet’s influence in January’s events, they appeared deeply concerned about how social media discourse can cause real-world problems.

Now, what happened to the bemoaned video game retailer’s stock price in January does not even remotely come close to the fallout of the pro-Trump riot at the Capitol that also took place that month, but it plays into how lawmakers are looking to regulate social media post-Trump. For example, earlier this month, Senate Democrats took their first stab at reforming Section 230 by introducing a bill, called the SAFE TECH Act. Basically, that bill would open tech companies, like Reddit and Facebook, up to lawsuits if the platforms host abusive content targeting specific users.

It was the first big moderation bill to drop after the deadly attack at the Capitol, and importantly, it could set the tone for future discussions around regulating tech platforms. That message clearly found its way across the Capitol from the Senate into the House.

Rep. David Scott (D-GA), asking Tenev if Robinhood engages in content moderation on social media — it doesn’t, and why would it? — brought up this line of thinking: “This episode [the GameStop-Reddit saga] exposes a serious threat to our financial system when tweets and social media posts do more to move the market than material, legitimate information,” Scott said. “The risk is enormous.”

Now, Scott’s take may not be mine, but it serves as an example of how lawmakers are tying together forum discussions and real-world action.

Responding to one lawmaker, I think Huffman raised an important counterpoint: “WallStreetBets may look sophomoric or chaotic from the outside, but the fact that we are here today means they’ve managed to raise important issues about fairness and opportunity in our financial system,” he said.

This balance will be difficult to strike if Congress proceeds on legislation.

THE HIGHLIGHT

The meme stock hearing’s most viral meme has to come from RoaringKitty’s opening statement. Last week, a Zoom filter of a cat got stuck on a lawyer’s face before a live court hearing, and the following video clip became a viral meme. Despite going by a cat-related username, Gill appeared to refer to the infamous lawyer cat in his opening remarks.

“A few things I am not: I am not a cat. I am not an institutional investor, nor am I a hedge fund,” Gill said.

It’s not the first time that white cat filter has been invoked in Congress. Watch a member of the House Financial Services Committee have trouble with Zoom in this Verge story from earlier this month.

WHAT DIDN’T THEY ASK?

Sitting through this hearing, I was waiting and waiting for Huffman to be on the receiving end of any meaningful line of questioning, seeing as he was the only witness who leads a social media company. Reddit may not be as big as Facebook, but it’s been at the center of some of the internet’s ugliest scenes, from /r/creepshots to Gamergate. Still, Huffman made his opening statement at the top of the hearing, and it took around an hour and a half before he said anything else.

Here’s what I would’ve liked to hear from Huffman:

• In Huffman’s opening remarks, he said that Reddit employees acted as “diplomats’’ to help soothe disagreements within r/WallStreetBets’ leadership during the height of the squeeze. Why did Reddit step in in such a way? Has Reddit ever had similar conversations with other subreddit moderators? If so, which subreddits, and why?
• To what extent was r/WallStreetBets’ GameStop short squeeze a content moderation issue?

WHAT’S NEXT?

Thursday’s hearing was just the first in a series following the Reddit-GameStop short squeeze. Chair Waters said in an interview with MSNBC’s Stephanie Ruhle Thursday that she plans to hold two more hearings before ending the committee’s investigation. It’s not clear when those additional hearings, one being an expert listening session and another focusing on legislation, are scheduled to take place.

The Senate Banking Committee, chaired by Sen. Sherrod Brown (D-OH), also said last month that it would hold a hearing on “the current state of the stock market” in the wake of the unprecedented market volatility around GameStop and other meme stocks. Still, Brown has yet to make any official announcements regarding that hearing or any additional actions the committee may take.

But in a flurry of letters Thursday morning, Banking Committee member Sen. Elizabeth Warren (D-MA) started taking measures into her own hands. Warren wrote to the Financial Industry Regulatory Authority, or FINRA, prompting the body to investigate Robinhood’s relationship with Citadel and asking it to ensure that retail investors aren’t disadvantaged by these relationships.

And of course, the Securities and Exchange Commission is currently investigating the GameStop saga on its own. In an interview with CNBC Thursday before the hearing, SEC Chair Hester Peirce didn’t provide much information on how the SEC plans to respond, but he did suggest short-selling limitations may be in the mix.