A number of lawmakers are voicing a critical tone toward a popular stock market trading app after it limited users from being able to trade GameStop shares, following actions by retail investors that resulted in a “squeeze” of the stock’s market price, which took a number of hedge funds by surprise this week.
Those hedge funds had bet against the video game retailer’s stock, “shorting” the shares based on predictions that their worth would continue to drop and hoping to make a profit on those shares later on. But amateur investors on a Reddit forum known as r/WallStreetBets, took note of these shorted sales and bought stock in the company themselves, increasing their market price and thus thwarting those hedge funds’ plans.
GameStop’s market value has increased from $2 billion to over $24 billion. Since December, the price of the shares in the company have increased by over 1,700 percent.
Because of the redditors’ successes, Robinhood, a popular investing app among amateur investors, barred users on Thursday from being able to trade GameStop stock. It also put a stop to a similar plan to raise the stock price of struggling movie theater company AMC.
Many have been critical of the move, noting that the ban on trading for these investors wouldn’t apply to the hedge funds that were shorting the stock in the first place, giving the appearance of preference to certain investors.
Some lawmakers on Capitol Hill also commented on the moves by the investment app. Rep. Alexandria Ocasio-Cortez (D-New York) derided their decision by speaking out on Twitter, stating the moves would “block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.”
“As a member of the Financial Services Cmte, I’d support a hearing if necessary,” she added.
Her sentiments on the matter appeared to be bipartisan, as Sen. Ted Cruz (R-Texas) chimed in and replied to her tweet, saying that he “fully” agreed with her point of view. Ocasio-Cortez, though appreciative of Republicans expressing concern over the matter as well, responded to Cruz by pointing out he was not someone she wanted to work with at the moment, due to his involvement in instigating a mob of Trump loyalists to attack the Capitol building earlier this month.
“I am happy to work with Republicans on this issue where there’s common ground, but you almost had me murdered 3 weeks ago so you can sit this one out,” she wrote to the senator. “Happy to work w/ almost any other GOP that aren’t trying to get me killed.”
Speaker of the House Nancy Pelosi (D-California), meanwhile, also expressed concern about the matter of GameStop’s stocks, noting that Congress would be “reviewing” the situation, as would the Biden administration, she suspected.
Rep. Ro Khanna (D-California) also weighed in, stating in a number of tweets throughout Thursday that the situation warranted further examination.
“We’re done letting hedge fund billionaires treat the stock market like their personal playground, then taking their ball home as soon as they lose,” he wrote in one tweet. “We need more regulation and equality in the markets.”
“We need an investigation into RobinhoodApp’s decision and who influenced that,” he added in a separate tweet later in the day. “And this shows the need for a financial transaction tax on hedge fund shorting and SEC regulations on short selling practices.”
In the other house of Congress, Sen. Sherrod Brown (D-Ohio) was reportedly planning to hold hearings in the Senate Banking Committee regarding the situation, according to Bloomberg congressional reporter Erik Wasson.
It’s worth noting that, while many have depicted this week’s events as a “David vs. Goliath” moment where small-time investors have seemingly outsmarted hedge fund managers, not everyone is seeing it that way. Alexis Goldstein, a former Wall Street professional who now works on financial policy, wrote about what was going on behind the scenes in a column for Markets Weekly:
[I]s this really Robinhood sticking it to Wall Street? And the answer is, no.
This isn’t hedge funds versus retail. It’s hedge funds versus other hedge funds (and versus Wall Street “flow” desks, which make money every day, and excel at doing so on volatile days) with retail driving the way forward. Melville Capital [a hedge fund that was shorting GameStop] may have imploded. But Citadel [a hedge fund whose Market Making arm is handling the majority of Robinhood orders] took part of it over. That’s hardly a resounding victory over the biggest titans of finance.
Other huge financial firms are likely to make huge profits from the stock gains on GameStop’s shares, much more than amateur investors can. As GameStop was in dire straits just a few months ago, BlackRock Inc., the largest asset manager in the world, had already owned millions of shares in the company. As a result, the value of their shares could be worth $2.6 billion, Reuters reports, due to the speculative frenzy.