WASHINGTON — Both chambers of Congress will have hearings into the Reddit-fueled GameStop trading saga after the House Committee on Financial Services announced it would probe recent market instability.
“Hedge funds have a long history of predatory conduct and that conduct is entirely indefensible,” Democratic chair Rep. Maxine Waters (D-Calif.) said in a statement Thursday afternoon.
“As a first step in reining in these abusive practices, I will convene a hearing to examine the recent activity around GameStop (GME) stock and other impacted stocks with a focus on short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors,” she added.
Renegade traders encouraged by financial advice YouTuber Roaring Kitty pumped money into flagging video game retailer, GameStop, seeing its shares surge more than 700 percent in recent week and sending its market cap from $1b billion to a staggering $24 billion.
Reddit message boards have described the rally as a “war” between novice investors and large hedge funds who short stocks to profit through potential share declines.
By Thursday, millennial-focused trading app Robinhood tried to pump the brakes and announced it was freezing its users’ ability to buy stocks in GameStop in a bid to stop the wild price swings.
Robinhood customers are now suing the company for blocking them from trading.
The decision sparked political outrage and created strange bedfellows when Texas GOP Sen. Ted Cruz and NY progressive Rep. Alexandria Ocasio-Cortez both condemned the move.
“We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit,” the Bronx congresswoman wrote in a tweet.
The Senate Banking Committee will also hold a hearing on “the current state of the stock market,” incoming Democratic chairman Sen. Sherrod Brown said Thursday.
“People on Wall Street only care about the rules when they’re the ones getting hurt. American workers have known for years the Wall Street system is broken — they’ve been paying the price,” Brown said in a statement.
“It’s time for the SEC and Congress to make the economy work for everyone, not just Wall Street.”
The rally has blown a hole as large as $70 billion in the short positions of traders who had bet against American companies this year.
No date has been set for the hearings.