Here’s what Robinhood execs allegedly said internally at the height of the GameStop short squeeze

3 weeks ago

Vlad Tenev, CEO and Co-Founder of Robinhood, successful his bureau connected July 15, 2021 successful Menlo Park, California.

Kimberly White | Getty Images Entertainment | Getty Images

Robinhood executives had a batch to speech astir the week Reddit users were driving a historical abbreviated compression successful GameStop.

New documents successful a suit allegedly amusement interior conversations betwixt executives panicking implicit however to conscionable fiscal requirements, debating the severity of a Reddit-driven abbreviated compression and contradicting the CEO's nationalist statements.

Plaintiffs successful the claim, which was filed successful the U.S. District Court successful the Southern District of Florida, allege they suffered damages erstwhile Robinhood enacted trading restrictions connected Jan. 28 amid volatile enactment successful GameStop and different meme stocks. They are suing for damages, involvement and attorneys' fees. Plaintiffs are besides seeking people enactment status.

"As a brokerage firm, we person galore fiscal requirements, including SEC nett superior obligations and clearinghouse deposits," the brokerage said in a Jan. 28 blog station addressing the trading restrictions. "Some of these requirements fluctuate based connected volatility successful the markets and tin beryllium important successful the existent environment."

According to the suit, successful 1 instance, Robinhood Chief Operating Officer Gretchen Howard messaged internally that the start-up was facing a "major liquidity crisis." Publicly, the company's main enforcement said the opposite.

"There was nary liquidity problem," CEO Vlad Tenev told CNBC's Andrew Ross Sorkin a time later, connected Jan. 29.

Sharp emergence successful trading volume

Robinhood and different brokerage firms saw unprecedented trading measurement successful January astir heavy shorted stocks, including GameStop and AMC. The brokerage start-up, which has to deposit wealth to a clearinghouse based connected the measurement of trades, said it restricted buying of definite securities due to the fact that the steadfast was incapable to conscionable deposit requirements. These requirements summation erstwhile volatility goes up successful lawsuit of ample losses by options trades.

"This clearing happening seems beauteous scary to maine -- I would accidental this is our biggest occurrence close now," Robinhood's manager of engineering allegedly said successful a Slack message, adding that the institution could spot a borderline telephone of hundreds of millions of dollars. "In the worst lawsuit script we max retired our recognition lines and they liquidate our positions."

According to the suit, David Dusseault, main operating serviceman of subsidiary Robinhood Financial, said the institution was "to [sic] large for them to really unopen america down," referring to the National Securities Clearing Corp., a supplier of centralized clearing services. In the aforesaid conversation, different executive, whose sanction is redacted, said "we're going to get crucified" for stopping trades, according to the complaint.

'A tidal question of measurement and volatility'

The chats were portion of the find process successful a suit against Robinhood. An lawyer for the plaintiffs argued that Robinhood knew the Reddit-driven chaos was coming and didn't bash enough.

"Robinhood and its higher-ups were good alert of this tidal question of measurement and volatility that was heading successful their direction," Maurice Pessah, laminitis of Pessah Law Group, told CNBC. "In our sentiment and arsenic we allege successful the lawsuit, they didn't bash their jobs and what they are required to bash successful presumption of analyzing risks and managing risks arsenic a broker."

In response, Robinhood said it disputes the plaintiff allegations and stands by nationalist statements regarding Jan. 28. A institution spokesperson said "the communications are accordant with Robinhood's absorption to instrumentality appropriate, incremental measures to mitigate risk."

In different excerpt, information scientists and Tenev debated however aggravated the Reddit frenzy could get, according to the suit.

"Maybe I americium being alarmist but I deliberation we should see all-hands connected platform benignant of concern and shuffle immoderate priorities to woody with expanding volumes," Robinhood's manager of engineering allegedly wrote. The company's caput of information subject responded "you whitethorn not beryllium being an alarmist" aft seeing a illustration showing the spike successful volume, plaintiffs alleged.

"Today was a immense day. There are interior things that are starting to buckle nether pressure," different bundle technologist said, according to the suit.

Tenev allegedly responded that "only the paranoid survive." His effect to a remark that "one who panics archetypal panics best" was "joy."

In different message, the institution acknowledged "blowback from this is going to beryllium exponentially worse arsenic clip goes on" and they "were disquieted astir the agelong word affects [sic] of this," according to the suit.

In the months that followed these conversations, Robinhood's CEO arsenic good arsenic the CEOs of Citadel and Melville Capital testified successful beforehand of Congress. Tenev told the representatives that the GameStop mania was a 1 successful 3.5 cardinal event, which helium called "unmodelable" and that Robinhood's hazard absorption processes kicked successful arsenic they were meant to. In bid to conscionable superior requirements and enactment up its equilibrium sheet, Robinhood raised much than $3.4 billion successful a substance of days.

The institution went connected to a blockbuster nationalist listing successful August.

Securities and Exchange Commission Chair Gary Gensler is expected to people a study connected the GameStop saga successful the coming weeks, arsenic good arsenic recommendations connected what, if any, changes should beryllium made to the U.S. trading strategy arsenic a result.