Wall Street hedge fund managers, the chief executives of Robinhood and Reddit, and a YouTube streamer known as Roaring Kitty were grilled on Thursday (February 18) by U.S. lawmakers about the Reddit rally in shares of GameStop Corp.
Rep. Sean Casten spoke to Robinhood's CEO about a 2020 incident. Robinhood had notified customer Alex Kearns in June, 2020 of what he thought was a $730,000 loss on a trade, and when he was unable to communicate with anyone at the company, the college student was thrown into a highly distressed mental state, according to a lawsuit.
As a result, fearing he had obligated his family to repay the huge loss, he ran in front of a train and killed himself, the lawsuit stated.
REP. SEAN CASTEN: June 2020, Alex Kearns, who was 20 years old at the time, from Naperville, Illinois, killed himself. Largely thanks to a-- a bug in the Robinhood system. The bug was that he turned on the app, said he owed $730,000 that he did not have, because of options positions that he thought canceled out but didn't appear to.
He called the helpline. The helpline of course, was not manned, as we've discussed. He sent several panicked emails, three, to be precise. Did not receive a response. Ultimately there was a response from email saying that, in fact, his positions were covered. But by that point, it was too late because he had taken his own life.
Your mission, Mr. Tenev, is to democratize finance, but the history of financial regulation is to protect people like Alex Kearns from the system. As the old joke goes if you're playing poker and you can't figure out who the fish is at the table, you should leave the table because you're probably the fish. And there is an innate tension in your business model between democratizing finance, which is a noble calling, and being a conduit to feed fish to sharks. So how do you ensure that you're getting best pricing if every single firm you're ruling out anybody who is not paying you for the privilege to trade?
VLAD TENEV: Congressman, we believe having uniform payment for order flow arrangements with all market makers ensures structurally that there is no conflict of interest because it prevents payment for order flow from being an input in decision making for where to route orders.
REP. SEAN CASTEN: OK, and I'm almost out of time, but there is an innate conflict in your model. Let's imagine right now that we are today's version of our parents. I'm nervous, I think on an exposure and I call your helpline now. Let's call and let's listen in the time we have remaining to what I'm going to hear on the other end of the phone. Thanks for calling Robinhood. Please visit us at robinhood.com or on your app for support. If you have an urgent trading need, please make sure to include details of the order when reaching out. Thanks and have a great day.