Wall Street hedge fund managers, the chief executives of Robinhood and Reddit, and a YouTube streamer known as Roaring Kitty faced a grilling on Thursday by US lawmakers about the Reddit rally in shares of GameStop Corp.
Some of Wall Street's most powerful players, including billionaire Republican mega-donor and Citadel CEO Ken Griffin, will make rare public statements about their businesses during the congressional hearing on how Reddit users trading on retail platforms banded together to squeeze hedge funds that had bet against shares of the video game retailer and other companies.
Griffin will appear before the Democratic-led House finance panel alongside Robinhood CEO Vlad Tenev, Melvin Capital CEO Gabriel Plotkin, Reddit CEO Steve Huffman, and Keith Gill, a Reddit user and YouTube streamer known as Roaring Kitty who promoted his investment in GameStop.
The five men have been at the center of the saga, which roiled Wall Street in January prompting probes by several federal and state agencies.
With Wall Street critic Representative Maxine Waters at the helm and Alexandria Ocasio-Cortez and other progressives on the 54-member panel, the hearing promises to be fiery, with tough questions for Tenev, Griffin and Plotkin in particular.
"Once or twice a year a hearing lends itself to good theater ... Thursday's hearing is one of those rarities," wrote Ian Katz at Alpha Partners in Washington, adding the hedge fund moguls are likely to be top targets for Democrats.
Waters has made it clear hedge funds are in her crosshairs, in January blaming their "unethical conduct" for the volatility.
"Many retail investors appeared to be motivated by beating Wall Street at its own game," she said at the hearing opening. "There are many whose beliefs the system is rigged against them has been enforced."
In prepared testimony published on Wednesday, the witnesses generally acknowledged the GameStop saga was unprecedented, but they all said there was no foul play on their part.
"Reddit users attempting to take down a hedge fund, that's an extraordinary thing...This is a break from history," Representative Patrick McHenry, the senior Republican on the House panel, told reporters before the hearing. "Congress has to do a lot more work to understand the nature of what occurred."
The Reddit rally drove massive volatility in GameStop and other shares, prompting the post-trade "clearing" houses that guarantee trades to call for billions of dollars in extra collateral from Robinhood and other retail trading platforms.
In response, many suspended buying in the affected stocks on Jan. 28. Lawmakers from both parties were outraged and questioned if the trading platforms were siding with hedge funds over Mom and Pop investors.
New York-based Melvin Capital, one hedge fund that had bet GameStop's shares would tumble, suffered massive losses as the stock soared leading up to Jan. 28. Citadel made a $2 billion investment in Melvin on Jan. 25.
Lawmakers will likely focus on whether Robinhood made it too easy for small investors to take risks, said analysts. Its commercial arrangements with market makers to which it routes orders may also be a hot topic, they said, as well as whether that "payment for order flow" model may disadvantage customers.
Robinhood says few of its customers engage in risky trades, while "payment for order flow" often helps customers get better prices than trading on a stock exchange.
Tenev, Griffin and Plotkin are likely to be grilled on short selling, and whether Robinhood's decision to suspend buying in the affected stocks was influenced by Citadel or Griffin, who majority-owns Citadel Securities, a Robinhood market maker.
All parties have denied any attempt by Citadel or Citadel Securities to influence Robinhood's policies.
Gill and Huffman are expected to field questions on the role of social media platforms in potential market manipulation.
Yet long-term legislative action is unlikely once the fireworks dissipate, said Isaac Boltansky, director of policy research at Washington-based Compass Point Research & Trading.
"We doubt that Washington can advance an acute policy prescription when broader concerns regarding equity market structure and economic equality complicate the conversation."