Congress is set to hold “Reddit Rally” hearings on 18 February, concerning the GameStop stock saga. The question is, will politicians go after big financial players with well-greased political connections or aim to make an example of the “little guy” retail traders on the WallStreetBets Reddit board who drove up stocks in early January?
There’s been a lot of talk about who was manipulating who and what, in a quadrangle of big hedge funds shorting stocks, other big players betting the other way, hordes of small investors banding together to drive up favored stocks, and apps like Robinhood that suddenly stopped stock buys. But it’s a fact that Reddit traders bought GameStop and other stocks like AMC in large enough quantities to move the markets. And it now seems that those individual players have the least political power in the upcoming political intervention.
Hedge funds like Citadel have a stake in making sure their game of using proxies to talk down companies after taking out short positions against them in the markets, gets back to “normal.” Citadel lost billions when their shorts GameStop, a brick-and-mortar gaming outlet, went sour. Young traders using “free trade” apps like Robinhood snapped up GameStop in a rage against the Wall Street machine, and the stock climbed from $15 to almost $400 at one point.
Citadel billionaire trader Ken Griffin will testify at the hearings in the Democrat-controlled House of Representatives. But he’s likely to be a friendly witness, detailing how his huge hedge fund was unfairly or even “illegally” targeted by Reddit traders. Citadel has a friend in Treasury Secretary Janet Yellin, who took over $800,000 in speaking fees from the hedge fund in 2019 and 2020.
Citadel also is connected financially with the Robinhood app that halted buys on GameStop and other stocks, throwing a fatal block on the Reddit ralliers. As it turns out, Robinhood gets paid by Citadel to funnel trades through Citadel Securities, another arm of the company. David Portnoy of Barstool Sports was a prominent critic who accused Robinhood of shutting down buys to protect Citadel and other Wall Street giants from losing money in the battle with small investors.
But there are signals that Citadel and Robinhood won’t be targets of the political probing. Instead, small-time Reddit traders and YouTube influencers may take the fall. According to reports, Federal investigators have subpoenaed information from the trading app Robinhood in a criminal probe to see how traders may have conspired in a “pump and dump” scheme. The House hearings are likely to take their cue from the Feds, as well as the SEC and Janet Yellin.