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Congress Targets GameStop Stock Mania as Ocasio-Cortez Rips Robinhood

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ALM photo of US Capitol building (Photo: U.S. Capitol, Diego M. Radzinschi/ALM)

Two leading House and Senate committees pledged to hold hearings on the recent gyrations in the stock market as lawmakers voiced bipartisan outrage at platforms that curbed trades in companies like GameStop Corp. that were fueled by the social media site Reddit.

“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,” incoming Senate Banking Chairman Sherrod Brown said in a statement. “It’s time for the SEC and Congress to make the economy work for everyone, not just Wall Street.”

Representative Maxine Waters, chair of the House Financial Services Committee, also promised a hearing focused on recent market instability and role played by hedge funds.

While neither Brown nor Waters announced dates for their respective hearings, a rare bipartisan collection of lawmakers spoke up to criticize platforms like Robinhood Markets Inc. for limiting trading in some stocks, saying it unfairly disadvantages regular people who should be allowed to trade as freely as hedge funds.

Response of Ocasio-Cortez, Warren

House Speaker Nancy Pelosi called recent trades “interesting,” and said relevant agencies should examine the issue. Progressive Democrats including Representative Alexandria Ocasio-Cortez and Senator Elizabeth Warren, as well as GOP Senator Pat Toomey, said the moves merit closer regulatory scrutiny.

“It’s turned into a casino so that market manipulators come in and they drive markets up or down and make a profit on it,” Warren said of the stock market on CNBC. “The billionaires and some hedge funds are yelling because they’re not the ones, the only ones, who make money when the manipulation works.”

Toomey, who’s poised to become the top Republican on the Senate banking panel, said he’s disturbed by Robinhood and other platforms blocking trades.

“I find it very disturbing that a platform would suddenly freeze out investors,” Toomey said. “People should be free to make the investment decisions they choose.”

Impact on ‘Everyday Investors’

In announcing a plan for action, Waters noted the “long history of predatory conduct” by hedge funds, adding that “private funds preying on the pension funds of hard working Americans must be stopped.”

“I will convene a hearing to examine the recent activity around GameStop 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,” the California lawmaker said in a statement.

Representative Patrick McHenry, the top Republican on the panel, said he “wants to open up markets to everyday investors” and is “watching the GameStop issue with absolute fascination.”

“If there has been market manipulation, fraud, or any pump-and-dump schemes, that obviously needs to be fully investigated,” McHenry said.

Ocasio-Cortez, also a member of the House Financial Services Committee, tweeted earlier that “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.”

Gensler Nomination Delayed

GameStop’s volatile trading briefly pushed the stock to No. 1 on the Russell 2000 Index on Thursday, despite the trading restrictions. But shares then fell as much as 68% from their high and trading was halted for the second time on Thursday. Shares in GameStop, a retail chain that sells new and used video games, closed down 44% Thursday at $193.60.

Jared Bernstein, a member of President Joe Biden’s Council of Economic Advisers, said the U.S. Securities and Exchange Commission is looking into the trading frenzy. But he suggested the situation was merely a symptom of broader inequality in the U.S. economy.

“For me, and for the president, where this goes is that we’re not going to measure our progress by the stock market,” Bernstein said on CNN. “You’ve got a booming stock market and you’ve got rising poverty. That is at the core of the problem that we are trying to solve, not just in the near term but lastingly.”

The Senate Banking Committee hasn’t scheduled a hearing to confirm Gary Gensler, Biden’s pick to lead the SEC, leaving the agency with an acting chair for weeks — or potentially even months.

White House Press Secretary Jen Psaki said she didn’t have specific information about Gensler’s confirmation timetable, as the Senate works through Biden’s cabinet-level nominees first.

Democrats assumed control of the Senate last week, and confirmation votes have moved slowly as Democratic and Republican leaders negotiate how to organize committees.

“The president has spoken about the urgency of getting his team in place to address the range of issues we’re facing and I don’t think that would be any different for Mr. Gensler,” Psaki said, adding that Biden is being briefed by his economic team.

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