Crypto-friendly platform Robinhood is at the epicenter of a financial scandal that threatens to overhaul Wall Street’s market practices. The situation with the shares of GameStop and AMC Entertainment, hedge funds and the community on the Reddit platform has already been noticed in the US Congress.
On November 29, 2020, a member of the r / WallStreetBets subreddit discovered short positions on the shares of the GameStop (GME) store chain at the hedge fund Melvin Capital. After that, users decided to buy up these shares in order to prevent large players from drowning the company.
As early as December 1, the cost of GME was around $ 16, but from January 12 it began to grow sharply. The peak was on January 27 – on the New York Stock Exchange the rate reached $ 347. At the time of writing, GME is trading at $ 193.60.
The GameStop stock pump turned out to be a major loss for Melvin Capital. According to the Wall Street Journal, the fund has lost 30% of its capital as of January 25. He was backed by market maker Citadel and hedge fund Point 72 Asset Management in the amount of $ 2.7 billion. The combined losses of shortists at GME this month are estimated at more than $ 19.75 billion.
Robinhood mobile platform is closely connected with Citadel. In June, the subsidiary of the market maker, according to the Financial Times, provided more than 35% of the trading platform’s revenue. Many members of r / WallStreetBets used the same platform to buy GameStop shares.
On January 28, Robinhood restricted trading to multiple assets. Among them were GME and AMC.
– Robinhood (@RobinhoodApp) January 28, 2021
Restrictions on GME trading did not affect private investors from Europe. GameStop shares are up 40% on January 29.
In Europe – where individual investors have not been restricted from trading on the free market – GameStop opened up 40% today pic.twitter.com/a5pWBCzBUy
– wsb mod (@wsbmod) January 29, 2021
In a blog post, Robinhood promised to launch limited trades on January 29th. One of the r / WallStreetBets contributors stated that the limit is up to five shares.
On Friday, January 29, Robinhood suspended accepting deposits and trading cryptocurrencies due to “an unusual market situation,” writes CNBC.
Robinhood previously blocked Dogecoin (DOGE) cryptocurrency trading. Calls to buy it appeared on the social network Reddit – against the background of the pump, the coin renewed its all-time high at around $ 0.087. During the day, the market value of DOGE has grown by almost 1000%. For a short time, the coin broke into the TOP-10 in terms of capitalization.
Dogecoin entered the top 10 cryptocurrencies by capitalization
The asset is trading at $ 0.049 at time of writing, according to CoinGecko.
Robinhood blocking $ DOGE tradinghttps: //t.co/Rcuc0LMPqa
– unfolded. (@cryptounfolded) January 28, 2021
The community was outraged by the platform’s actions. The members of the subreddit organized a campaign to lower the rating of the Robinhood app in the Google Play Store.
According to 9to5Google, the value dropped to one star. Since then, Google has removed over 100,000 negative reviews for service policy violations by upgrading the app. Robinhood has a rating of 4.3 on the Play Store at time of publication.
According to Reuters, social networking site Facebook has removed the popular Robinhood Stock Traders. It had 157,000 subscribers, including private investors who bought GameStop shares. The notice to the administrator said the community had violated the “adult sexual exploitation” policy.
However, the situation turned out to be not only negative reviews for Robinhood. On January 28, a group of investors filed a class action lawsuit against the company, accusing it of “deliberately and knowingly” depriving private traders of the opportunity to invest.
gov.uscourts.nysd.553175.1.0 by ForkLog on Scribd
On January 29, a Bloomberg source said the trading platform had raised funds to maintain and settle with clients. JPMorgan and Goldman Sachs are among the creditors, according to the agency.
The New York Times clarified that it is about $ 500-600 million from six banks. As the sources of the publication added, the company asked for emergency funding from investors, including Sequoia Capital and Ribbit Capital.
The Citadel connection also angered the community. Justin Kahn, co-founder of the Twitch streaming service, said the market maker “reset the shorts” before Robinhood introduced the restrictions.
Just got a tip that Citadel reloaded their shorts before they told Robinhood to stop trading $ GME…
If this is true, Ken Griffin and the Robinhood founders should be in jail.
This is class warfare.
– Justin Kan (@justinkan) January 28, 2021
The creator of the sports media platform Barstool Sports, Dave Portnoy, accused Point 72 founder Stephen Cohen of “having a hand in criminal events to save hedge funds at the expense of ordinary people.”
I don’t do offline. That’s where shady shit happens. You bailed out Melvin cause he’s you’re boy along with Citadel. I think you had strong hand in todays criminal events to save hedge funds at the cost of ordinary people. Do you unequivocally deny that? https://t.co/x8MQhTXSIW
– Dave Portnoy (@stoolpresidente) January 28, 2021
Portnoy also said that he would not rest until those responsible for what was happening were in prison.
I Won’t Rest Till The People Responsible For Today Are Behind Bars pic.twitter.com/tlbHD4TPQ0
– Dave Portnoy (@stoolpresidente) January 29, 2021
Entrepreneur Donald Trump Jr. has called for an “immediate investigation” of the situation around Robinhood and Citadel.
Any Republican in Washington DC worth a damn should be calling for an immediate investigation into Robinhood and Citadel.
And while they’re at it, subpoena Janet Yellen & lets find out if there was pressure coming from the Biden Admin to protect their cronies on Wall Streeet !!!
– Donald Trump Jr. (@DonaldJTrumpJr) January 28, 2021
Sherrod Brown, chairman of the US Senate Banking Committee, has demanded that stock market rules be reviewed.
“People on Wall Street only care about rules when they have problems […] It’s time for the Securities and Exchange Commission (SEC) and Congress to make the economy work for everyone, not just Wall Street, ”the message says.
Congressman Paul Gosar asked the US Department of Justice to investigate the incident with GameStop and Robinhood.
My letter to DOJ to open an investigation regarding #GameStop #RobinhoodApp and anti competitive actions between Big Tech and Wallstreet. #wallstreetbets https://t.co/5B9eTcLLSq pic.twitter.com/SO79vyZYCp
– Paul Gosar (@DrPaulGosar) January 28, 2021
The SEC said it would take a closer look at companies like Robinhood. The department did not directly mention the platform, but hinted at prices for “some shares”.
The FTX crypto derivatives exchange support team expressed their sympathy to colleagues at Robinhood. Earlier, the site added GameStop tokenized shares to the listing.
The FTX Support team would like to offer our condolences to whoever answers emails at Robinhood https://t.co/NRI1xtTdQI
– FTX – Built By Traders, For Traders (@FTX_Official) January 29, 2021
H3h3Productions podcast host Ethan Klein said he will continue to buy GME shares until the “criminal hedge funds” go bankrupt.
Im buying game stock, I don’t care if I lose it all and I will continue to invest in companies being shorter by criminal hedge funds until they are all bankrupt
– Ethan Klein (@ h3h3productions) January 29, 2021
The HUB team also published a detailed analysis of the situation.
Reddit vs. Foundations. Who will win?
It is not the first time that Robinhood has come to the attention of American regulators. In September 2020, the SEC and the Financial Services Regulatory Authority responded to user frustration over an app crash in March.
In December 2020, the Massachusetts regulator announced its intention to sue Robinhood. According to the department, the company’s marketing policy exposed customers to “unnecessary trade risks.”
The SEC has accused the trading platform of misleading users by claiming that it does not charge trading fees.
Recall that at the end of 2020, Robinhood agreed to pay $ 65 million to settle claims from the regulator.
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