Robinhood took revenge on the Redditors driving up GameStop’s market cap to protect the hedge funds paying them, and the internet is livid.
The SEC is currently investigating why exactly the cryptocurrency and stock trading app froze purchases of GameStop shares while allowing users to sell it, and politicians ranging from socialist Alexandria Ocasio-Cortez to Trumpublican Ted Cruz have lambasted the move.
Supposed populist of the Senate, Elizabeth Warren is also concerned, but not with the multibillion-dollar company that seemingly rigged the stock market to protect their buddies at hedge funds. No, instead, Warren is ready to wage war on the retail traders who had the audacity to beat the billionaires at their own game.
Casino-like swings in stock prices of GameStop reflect wild levels of speculation that don’t help GameStop’s workers or customers and could lead to market instability. Today I told the SEC to explain what exactly it’s doing to prevent market manipulation. https://t.co/NWaZe1jFVb pic.twitter.com/MAbjHcq47i
— Elizabeth Warren (@SenWarren) January 29, 2021
In a letter to the SEC, Warren warns that the “gamesmanship” of the stock surge interferes with the “function of the market.” Although she calls on the SEC to investigate whether either the Redditors or the hedge funds broke existing securities laws, she names “the sharp rise in GameStop’s share” price as the problem, making it clear who her real target is.
As President Biden would say, this is malarkey.
The Redditors did nothing wrong. Shorting can be a valuable way to correct market caps to reflect a company’s real value, but the hedge funds had taken a short position far beyond anything they could justify in the market. They gambled that they could suppress the share price and reap a profit. The Redditors took advantage of this, ruining their plan with a completely legal campaign to buy stock and force them to cover their short positions.
Robinhood, a favorite app among active retail investors in the stock market, responded to this by rigging the game with the Thursday stock purchase freeze. This gave short-sellers time to lick their wounds as the share price tumbled thanks to the one-way movement of share trades. Robinhood even apparently forced sales of some shares without user consent, further manipulating the price. The result: The bulk of the 5 million shares sold short and now covered in the past week occurred on Thursday when Robinhood helped artificially suppress them.
An initial public statement from the company claimed they had to freeze GameStop share purchases to meet financial requirements like SEC net capital obligations, but CEO Vlad Tenev told CNBC’s Andrew Ross Sorkin that they did so to “protect investors” and that liquidity wasn’t an issue.
Perhaps the rulers of Robinhood are so arrogant that, rather than wanting to “democratize” finance as they claim, they really want to save the plebians from themselves. But if we’re less charitable, we might conclude that they got a call from the suits that finance their own operation to rig the game.
The truth is probably somewhere in between. Tenev and company probably intuited that they had to save the suits on their own. Regardless, the decision is a travesty. That Warren can’t see that those squeezing the short are the real victims explains why the woman who bills herself as a politician for the people flamed out of her presidential bid after failing to win a single state, including her own.
