Members of Congress on both sides of the aisle are speaking up in support of retail investors who drove up the share price of the video game retailer GameStop, prompting online brokerage apps to pause trading on the stock.
The Securities and Exchange Commission said Friday that it was "closely monitoring and evaluating the extreme price volatility of certain stocks' trading prices," but didn't name the stocks. It said it is working with other regulators "to ensure that regulated entities uphold their obligations to protect investors and to identify and pursue potential wrongdoing."
Lawmakers on Thursday vowed to hold hearings on the market turmoil as Robinhood Markets Inc., TD Ameritrade and other online brokerage firms halted purchases of GameStop on Thursday, though they said they would allow users to offload their positions.
The retailer's shares surged nearly 1,000 percent during the two weeks leading up to the pause, driven in part by retail investors connecting with each other online through the Reddit platform known as WallStreetBets.
GameStop took a hit from the pandemic’s closure of malls and competition from digital game download. Hedge funds that had bet those factors would drive down GameStop’s share price were left in a lurch when prices soared. Some funds tried to capitalize by shorting the stock, a practice in which they sell borrowed shares in the belief they can buy them back after the price falls and return them.
Lawmakers from both parties slammed Robinhood and other apps for halting trades on the stock, which they said unfairly locked out retail investors while allowing their institutional counterparts, including hedge funds, to keep trading. Democrats complained that rules on Wall Street only apply to retail investors, not institutional players.
“People on Wall Street only care about the rules when they’re the ones getting hurt,” Sen. Sherrod Brown said in a statement. The Ohio Democrat is in line to be chairman of the Senate Banking Committee and said he would hold a hearing on the issue.
“American workers have known for years the Wall Street system is broken — they’ve been paying the price,” he said.
Noting that "extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence," the SEC statement said it would protect retail investors "when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws. Market participants should be careful to avoid such activity."
Sen. Elizabeth Warren, a Massachusetts Democrat who also sits on the banking panel, said in a tweet that the episode illustrates the disconnect between the stock market and the real economy.
“For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price,” she said Wednesday. “It's long past time for the SEC and other financial regulators to wake up and do their jobs.”
In the House, Democratic Reps. Alexandria Ocasio-Cortez of New York, Rashida Tlaib of Michigan, and Ted Lieu of California slammed online brokers used by retail investors for halting trades on GameStop and other heavily shorted stocks.
“Is there anything wrong with folks buying a stock like GameStop because they want to stick it to hedge funds? No,” Lieu said in a tweet. He called on the Securities and Exchange Commission to investigate Robinhood, which was one of many brokers to pause GameStop purchases.
The apps are “blocking the ability to trade to protect Wall St. hedge funds, stealing millions of dollars from their users to protect people who've used the stock market as a casino for decades,” Tlaib said, also on Twitter.
House Financial Services Chairwoman Maxine Waters of California said she would also set a hearing on the matter. Ocasio-Cortez and Tlaib are members of that committee.
“This is a serious matter,” Ocasio-Cortez said. “Committee investigators should examine any retail services freezing stock purchases in the course of potential investigations — especially those allowing sales, but freezing purchases.”
Sen. Ted Cruz, a Republican from Texas, said “fully agree” in a reply to a tweet by Ocasio-Cortez that called for hearings.
Robinhood did not respond to requests for comment.