What Happened During the GameStop Hearing?

The Game stop hearing has certainly raised a lot of questions surrounding investment and the way that ordinary people can change the economic climate. The wide ranging hearing lasted over 5 hours and saw investment platforms criticised for their role in the GameStop rush on stock which took place in January 2021.

The GameStop rush inflated the price of stock for a few days and almost crashed the stock market. Today GameStop stock has plummeted by 80% so anyone who felt they could get rich by playing the markets, without understanding any of it, have certainly lost the bulk of their investment.

Robinhood the trading app at the heart of the trading frenzy was singled out for special criticism. 

Company CEO Vlad Tenev had to apologise for Robinhood’s performance during the crisis, including the policy to restrict trading in stock of GameStop and other largely overlooked companies which were targeted by amateur traders organizing on social media. 

The decision, and similar ones by other online brokers, interfered with the integrity of the trading process. It caught the wannabee investors off guard, and drew a rash of lawsuits, provoking outrage from lawmakers in both parties.

The Game Stop hearing featured testimonies from all the major players. Keith Gill the trader known as roaring kitty on YouTube who started the whole frenzy, Reddit co-founder Steve Hoffman and the CEOs of major investment companies including Citadel and Mervin Capital all faced criticism and are likely to face further investigation by the law makers. 

However it was Robinhood and Vlad Tenet who were singled out for most of the blame. According to the Court, Robinhood has been the company to profit most from the Game Stop mania because the app makes it money from transaction fees. These are hidden from the customer, creating the illusion that Robinhood enables trading for free. 

Republican senator Cindy Axne (D-Iowa) was among those who called the arrangement a conflict of interest that disadvantages the users Robinhood says it exists to empower, Saying to Tenev that” the app’s users “aren’t your customers, they’re your product,”

Tenev acknowledged that Robinhood generates the majority of its revenue from the deals but disputed Axne’s characterization, arguing its business model “has become the industry standard for a reason. It’s because it’s good for customers,” and allows them to trade for free. “

This fact was disputed in the court for a long time getting nowhere as Tenev defended the Robinhood business model and the senators insisting that it was misleading to customers.

A more sombre note entered the courtroom when Tenev was asked about the tragic death of a 20 year old customer last year. Alex Kearns died by suicide last year after being hassled by Robinhood for having a negative balance of $703,000 and being faced with a bill of $178,000. It turned out that this was an accounting error but despite Kearns trying to contact Robinhood he was unable to reach out and eventually took his own life.