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What executives said internally during GameStop’s short squeeze

Vladimir Tenev, CEO and co-founder of Robinhood, at his office in Menlo Park, California, July 15, 2021.

Kimberly White | Getty Images Entertainment | Getty Images

Robinhood executives talked a lot about the week Reddit users were driving historic short squeeze on GameStop.

The proceedings’ new document is said to panic about how to meet financial requirements, discuss the significance of Reddit-led short squeeze, and show internal conversations between executives that contradict the CEO’s official statement.

Plaintiffs in a claim filed in the U.S. District Court in Southern Florida alleged damages when Robin Hood imposed damages on January 28 during the volatile activity of GameStop and other meme stocks. Insist. They are suing for damages, interest and attorney’s fees. Plaintiffs also seek the status of class proceedings.

“As a brokerage firm, there are many financial requirements, including the SEC’s net capital obligations and clearing deposits,” the brokerage firm said in a blog post on January 28. “Some of these requirements fluctuate based on market volatility and can be significant in today’s environment.”

In one case, Robin Hood’s chief operating officer, Gretchen Howard, sent a message internally that the startup was facing a “serious liquidity crisis,” according to the proceedings. Publicly, the company’s CEO said the opposite.

“There were no liquidity issues,” CEO Vladimir Tenev told CNBC’s Andrew Ross Sorkin on January 29, the following day.

Rapid increase in transaction volume

Robinhood and other brokerage firms saw unprecedented trading volumes in January, centered on a significant shortage of stocks, including GameStop and AMC. A brokerage firm startup that has to deposit money in a clearinghouse based on trading volume said it restricted the purchase of certain securities because the company failed to meet its deposit requirements. These requirements increase as volatility increases in the case of large losses from options trading.

“This liquidation seems pretty scary to me. I think this is our biggest fire right now,” Robin Hood’s engineering director said in a Slack message, and the company could see hundreds of millions of dollars in margin claims. He added that he had sex. “In the worst case scenario, make the most of your credit line and close your position.”

According to the proceedings, David Duseau, chief operating officer of subsidiary Robin Hood Financial, said the company said [sic] Mentioning National Securities Clearing Corp., a provider of centralized clearing services, in the same conversation, another executive whose name was edited said, “We will be crucified.” According to the complaint, the transaction will be suspended.

“Tsunami of volume and volatility”

Chat was part of the discovery process in the proceedings against Robin Hood. Plaintiffs’ lawyers alleged that Robin Hood knew there was a Reddit-led mess and didn’t work well.

“Robinhood and his officials were familiar with this tsunami of volume and volatility heading in their direction,” Maurice Pessa, founder of the Pessa Law Group, told CNBC. “In our opinion, and as we allege in the proceedings, they did not do their job, and they did about analyzing risk and managing risk as a broker. I didn’t do what I had to do. “

In response, Robin Hood disagreed with plaintiffs’ allegations and said he would support the official statement on January 28. “Communication is in line with Robin Hood’s focus on taking appropriate step-by-step measures to mitigate risk,” said a spokesperson for one company.

In another excerpt, data scientists and Tenev discussed how the Reddit frenzy could be intensified, according to the proceedings.

Robin Hood’s engineering director said, “I may be wary, but I need to take a full look at deck-like situations and shuffle some priorities to deal with the increasing volume. I think there is. ” According to plaintiffs, the company’s data science director replied, “You may not be vigilant,” after seeing a graph showing the surge in volume.

“Today was a big day. There are some internal things that are starting to buckle under pressure,” another software engineer said in the proceedings.

Tenev is said to have answered that “only paranoids survive.” His reaction to the comment that “the first person to panic is the most panicked” was “joy”.

In another message, the company admitted that “future blowbacks will grow exponentially over time,” and “worried about the long-term consequences.” [sic] Of this, according to the proceedings.

In the months following these conversations, not only Robin Hood’s CEO, but also Citadel and Melville Capital’s CEOs testified in front of Congress. Tenev told representatives that GameStop Mania was an event of 1 in 3.5 million people, calling it “unmodelable” and that Robin Hood’s risk management process started as intended. Robin Hood raised more than $ 3.4 billion in a few days to meet capital requirements and strengthen its balance sheet.

The company went public in August as a big hit.

Securities and Exchange Commission Chairman Gary Gensler will publish a report on GameStop’s saga in the coming weeks and recommendations if changes need to be made to the US trading system as a result.

What executives said internally during GameStop’s short squeeze

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