Thursday morning, untold numbers of people who invest in the stock market through the Robinhood app got an unpleasant surprise. The app informed them via instant message that they had canceled buying GameStop stock (symbol: GME). These individuals had not, in fact, canceled their buys. Robinhood canceled them, but pushed the action of canceling onto the customer.
Ironic, given Robinhood’s claims about its reason to exist.
Robinhood might amend that to “Let the people trade…as long as our hedge fund backers want them to.”
The unilateral cancelation of GME buys rocked the price and is not sitting well. Users have filed a class-action lawsuit against the app.
— Lydia Moynihan (@LJMoynihan) January 28, 2021
Discovery is going to be interesting.
This is all in response to the Reddit r/wallstreetbets collective action to buy stock in the struggling but popular video game seller GameStop—to wreck the hedge fund Melvin Capital, which stood to gain on GME’s stock price falling. Melvin had overleveraged itself betting on that stock’s decline. Driving GME’s price up to new heights would put Melvin in a major and potentially catastrophic bind while potentially making the stock’s buyers very rich if they bought it at about $6 per share and it rocketed up into the hundreds. Most of the buyers from the r/wallstreetbets brigades were buying the stock fractionally via Robinhood, which bills itself as a free stock trading app. How free is it? Perhaps the class-action lawsuit will get to the bottom of that.
Trading stock on the belief that its value will rise or decline is perfectly legal. But unilaterally stopping people from trading, in order to shore up another hedge fund’s reported bailout of Melvin Capital, and impacting the value of the stock in question, might not be.
Melvin has reportedly been shored up by an investment from another hedge fund, Citadel Securities. Here’s where things get sticky. According to The Week:
Robinhood has framed the decision (to unilaterally stop the trading) as a way to “help our customers navigate this uncertainty” in its blog post. The Verge meanwhile noted one hedge fund suffering amid the GameStop surge was Melvin Capital Management, which another hedge fund, Citadel, has since bailed out. Citadel’s founder is Ken Griffin, who also founded Citadel Securities, a big investor in Robinhood that also works with TD Ameritrade and Charles Schwab.
The messages Robinhood sent to blocked buyers didn’t help anyone navigate anything. They merely said, incorrectly, that the buyer had canceled the buy. Robinhood had canceled the buy. Why and on whose behalf?
Things get even stickier. On Wednesday, a reporter asked White House spokeswoman Jen Psaki about the GME stock trading. Psaki attempted to deflect by reminding us that America has its first woman Treasury Secretary (Janet Yellen) who is “monitoring the situation.” Unusually, there was no Psaki promise to “circle back.” That’s flak-speak for “I don’t know but I don’t want to say ‘I don’t know’ so I’ll say I’ll get back to you in a way that sounds smart and trendy.”
Narrator voice: It’s neither smart nor trendy. It’s already been exposed as a crutch.
Psaki’s punt may have put the Biden administration in a bind with her short-sightedness.
It turns out that America’s first woman Treasury Secretary Janet Yellen has a big financial link to all this. Politico reported on it back when Yellen was nominated to her post:
Yellen, the former chair of the Federal Reserve, brought in nearly $1 million giving nine speeches to Citi alone. She earned more than $800,000 speaking to Citadel, a hedge fund founded by the Republican megadonor Ken Griffin. She also spoke to the law and lobbying firm Pillsbury Winthrop Shaw Pittman.
There’s a lot packed into that little paragraph, such as the incestuous uniparty that crosses R and D lines to fund, enrich, and often protect its own. It doesn’t think highly of the rest of us. The r/wallstreetbets folks have designs on changing that with a peaceful protest of Wall Street and hedge fund short shenanigans that destroy businesses and jobs. It’s an app-driven way of occupying Wall Street, without all the feces and unpleasantness that accompanied the last Occupy Wall Street movement. They bought the stock and clutch it with diamond hands to force Melvin Capital into treacherous financial waters, and make honest money for themselves.
Frankly, it’s hilarious. Elon Musk seems to think so.
— Elon Musk (@elonmusk) January 26, 2021
What did Yellen know about all this, and when, and what was the outcome of her “monitoring” the situation? Who instructed Robinhood to halt trading of GME by the people, which caused the stock to plunge from its high before recovering and stabilizing?
If all that looks like market manipulation — locking buyers out from purchasing a stock with their own money and of their own free will, therefore causing a price to fall, and helping shore up an overleveraged hedge fund with serious political connections, while telling ordinary people they’d done something they hadn’t — well, you’re not in the uniparty.
Robinhood billed itself as a people’s platform, a way the poor could buy fractional stocks and trade their way into a bit of riches. But it may be that Robinhood has been unmasked as the sheriff of a rotten, rigged system.