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Photo Illustration: Justin Sullivan/Getty Images

The stock-trading app Robinhood has an arsenal of political power brokers it can deploy on its behalf as it faces congressional inquiries over its role in an internet-fueled market manipulation frenzy.

Why it matters: The populist, discount trading platform is going to need that firepower because its decision to suspend trading of stock in GameStop and a number of other companies on Thursday has sparked criticism and promised inquiries from both sides of the aisle.

  • Robinhood's chief legal officer Daniel Gallagher, who joined the company last year, is a former SEC commissioner.
  • In mid-2019, Robinhood hired former SEC chief of staff Lucas Moskowitz to oversee regulatory and government affairs.
  • In November, the company brought on Beth Zorc, the former senior counsel for the Senate Banking Committee.
  • Since last summer, Robinhood has hired lobbyists from four firms, including former officials at the SEC as well as the Senate Banking and House Financial Services committees.

What's happening: Robinhood blocked purchases of GameStop stock after retail traders sent its share price skyrocketing this week — dealing body blows to large Wall Street investment firms that held short positions in the video game retail chain.

  • The free trading app also suspended trades of other companies targeted by Reddit users who had banded together to try to collectively punish the prominent hedge funds.
  • At one point on Thursday, GameStop's stock was up by 2,000% since the beginning of the year.
  • Robinhood cited "recent volatility" in explaining its decision.

The move quickly drew furious reactions from lawmakers in Washington.

  • "This is unacceptable," tweeted Rep. Alexandria Ocasio-Cortez (D-N.Y.). "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."
  • Sen. Ted Cruz (R-Texas) tweeted a thumbs up to the statement.
  • North Carolina Rep. Patrick McHenry, the top Republican on the House Financial Services Committee, said he planned to ask the panel's chair to hold a hearing. He cited the importance of "democratizing finance through technology."
  • Senate Banking Committee Chair Sherrod Brown (D-Ohio) announced hearings of his own. "It's time for the SEC and Congress to make the economy work for everyone, not just Wall Street," he said in a statement.

The bottom line: Robinhood clearly recognized it might face policy challenges as a would-be disruptor in a heavily regulated industry, as reflected by its recent hiring.

  • It's not the only politically connected company wrapped up in the GameStop saga. Citadel, a hedge fund that provided an emergency cash infusion to one of the biggest losers from GameStop's stock surge, paid more than $800,000 in speaking fees in 2019 and 2020 to Janet Yellen, the new U.S. Treasury secretary.
  • Yellen "is one of the world-renowned experts on markets, on the economy," White House press secretary Jen Psaki said Thursday. "It shouldn't be a surprise to anyone she was paid to give her perspective and advice before she came into office."

Go deeper

Dan Primack, author of Pro Rata
Jan 29, 2021 - Economy & Business

Robinhood misses the mark

Illustration: Sarah Grillo/Axios

Robinhood spent yesterday taking from its credibility and giving to its critics, in one of the most inexplicable self-immolations Silicon Valley has ever seen.

The latest: Robinhood is racing to raise $1 billion from existing investors, ahead of plans to reopen trading of GameStop and other '90s nostalgia stocks.

Felix Salmon, author of Capital
Jan 29, 2021 - Economy & Business

SEC says it will "closely review" restrictions on Reddit-fueled stocks

Photo: Olivier Douliery/AFP via Getty Images

The Securities and Exchange Commission on Friday warned Robinhood and other brokerages that it will "closely review" actions they took on Thursday that prevented investors from buying stock in GameStop and other popular Reddit-fueled stocks.

Why it matters: The move from Robinhood generated anger across the political spectrum and among small investors who wanted to participate in one of the most exciting stock-market trades of the moment.

Dion Rabouin, author of Markets
Jan 29, 2021 - Economy & Business

Making sense of the GameStop circus

Illustration: Aïda Amer/Axios

It's probably fair to say that Thursday was one of the crazier days in the history of financial news.

What happened: Robinhood, which has become synonymous with retail trading and the parabolic rise of stocks like GameStop and Tesla, shut down the ability of its users to buy (but not to sell) some of the platform's most popular names.

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