Warren presses Robinhood chief on decision to halt GameStop purchases

Sen. Elizabeth Warren (D-Mass.) is asking Robinhood to explain why it prevented users from purchasing shares of GameStop and other quickly rising stocks last week and how it plans to handle customer complaints.

In a Tuesday letter, Warren pressed Robinhood CEO Vlad Tenev on a litany of concerns raised by the trading platform’s decision to curb purchases of roughly a dozen stocks and its frantic sprint to raise more money to comply with regulatory safeguards.

“The public deserves to know the details of circumstance behind Robinhood’s decision to restrict trading and about other actions that appear to be treating individual investors in an unequal or unfair fashion,” Warren wrote, saying the company “abruptly chang[ed] the rules for these individual investors with no warning or recourse.”

Warren, a member of the Senate Banking Committee, is among several lawmakers in both parties who have criticized Robinhood and raised questions about its widely derided response to the GameStop frenzy.

Robinhood on Thursday prevented customers from purchasing shares of GameStop and other companies favored by members of the Reddit subforum r/WallStreetBets as they soared to mind-bending heights. The company was one of several trading platforms that slammed the brakes on those sales but drew the most heat given its wide popularity, particularly among the Reddit traders.

Robinhood later drew down lines of credit and tapped investors to raise billions of dollars to comply with federal capital requirements and backstops requested by clearinghouses, which process trades for brokers. Tenev said in an interview with Elon Musk on Monday that he had no choice but to clamp down on customer trades and said there wasn’t any “shadiness” to the decision.

Tenev, however, will need to sell skeptical lawmakers on his response during upcoming hearings before the House and Senate. The House Financial Services Committee will hold a hearing on the Reddit-driven stock rallies and Robinhood’s response on Feb. 18, and the Senate Banking Committee will convene a similar hearing at a date to be determined.

Robinhood’s bipartisan critics say the company’s actions effectively shut out amateur traders from purchases hedge funds and other established investors were still able to make.

“Robinhood has a responsibility to treat its investors honestly and fairly, and provide them with access to the market under a transparent and consistent set of rules. It is deeply troubling that the company may not be doing so,” Warren wrote. 

She pressed Tenev on Robinhood’s treatment of customers, ripping the company for forcing users to sign arbitration clauses that waive their right to sue the trading platform. The senator is among several progressive critics of forced arbitration clauses, particularly for financial services.

Warren also asked Tenev to explain Robinhood’s connection to Citadel Securities and whether it influenced the platform’s decision to ban certain stock purchases.

Citadel Securities is a market marker that processes roughly 22 percent of all U.S. stock trades and 39 percent of retail trades, including more than half of stock orders made on Robinhood.

Citadel Securities was founded by Ken Griffin, who also runs Citadel LLC, a legally separate hedge fund that bailed out Melvin Capital after it took heavy losses on shorting GameStop.

Warren and many of Robinhood’s critics have asked whether Robinhood was pressured by Citadel Securities to stop selling GameStop in the wake of Melvin Capital’s losses. 

Tenev and Citadel both denied any connection between Robinhood’s decision and Citadel LLC’s involvement. Citadel Securities also told Bloomberg News in a statement that the market maker witnessed “an extraordinary level of retail trading last week,” raising questions about why it would pressure Robinhood to clamp down on trades that would have likely made Citadel Securities even more money.