BY: Tory Newmyer, Hannah Denham
Shares of GameStop and other companies plummeted in regular trading yesterday even as leading brokerages moved to limit trading in the stocks - a decision that infuriated lawmakers and the ordinary retail investors who had used those stocks to wage a populist war against big Wall Street hedge funds.
Those investors had been coordinating on a Reddit message board to send the prices of those stocks soaring for most of this week, inflicting painful losses on hedge funds that bet the shares would drop. The mobilization has transfixed Wall Street this week.
But on Thursday, many of those stocks were sold, despite some users of the Reddit message board pleading with people to hold their investments. GameStop stock closed down 44%. Other stocks boosted by investors on the Reddit message board also cratered, with movie theater giant AMC Entertainment dropping 57%; BlackBerry shedding 42%; and Nokia falling 29%.
As the trading frenzy continued, Robinhood and Interactive Brokers, two of the most popular online trading apps for retail investors, announced they would restrict users' trading in the stocks seeing the most action. Those moves came after TD Ameritrade earlier in the week said it would impose restrictions.
"We do not believe this situation will subside until the exchanges and regulators halt or put certain symbols into liquidation only. We will continue to monitor market conditions and may add or remove symbols as may be warranted," Interactive Brokers said on its Twitter feed.
Robinhood said it is barring users from buying shares of GameStop, AMC, BlackBerry, Bed Bath & Beyond, the retailer Express, headphone maker Koss, Nokia and Naked Brand Group.
"We continuously monitor the markets and make changes where necessary," the company said in a blog post. It said it made the move "in light of recent volatility."
The decision sparked fury among the app's users - Barstool Sports founder Dave Portnoy, a champion of retail investors, said Robinhood would "never recover from this" - and caught the attention of an unlikely pair of lawmakers.
In a tweet, Rep. Alexandria Ocasio-Cortez, protested the trading app's move "to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit." Ocasio-Cortez, a member of the House Financial Services Committee, indicated that a hearing on the issue might be necessary. The lawmaker also said she planned to discuss GameStop and issues related to retail trading Thursday night on Twitch, a popular video game streaming platform.
Sen. Ted Cruz, who frequently clashes with Ocasio-Cortez online, endorsed her statement.
Rep. Maxine Waters, D-Calif., chair of the House Financial Services Committee, said in a statement late Thursday that she plans to hold a hearing on market issues raised by the GameStop stock activity.
"Hedge funds have a long history of predatory conduct and that conduct is entirely indefensible. . . . As a first step in reining in these abusive practices, I will convene a hearing to examine the recent activity around GameStop (GME) 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 whipsawing market action has forced the companies facilitating it to scramble. The Reddit message board, WallStreetBets, briefly went private on Wednesday night. In a post after unlocking the forum shortly thereafter, its moderators wrote they have "grown to the kind of size we only dreamed of in the time it takes to get a bad nights sleep. We've got so many comments and submissions that we can't possibly even read them all, let alone act on them as moderators."
Meanwhile, at least seven retail brokerage firms - including TD Ameritrade, Robinhood Crypto, E-Trade, Charles Schwab, Fidelity Investments, Vanguard and Interactive Brokers - experienced service disruptions Thursday morning, which many attributed to higher volume, although did not specially cite the GameStop activity.
The website Downdetector reported login and website issues for some of the firms, as well as Reddit, starting after 9 a.m. Eastern.
The big losses in the stocks targeted by WallStreetBets came on one of the best days for the overall markets. The Dow Jones industrial average rose about 2%, erasing much of the losses it experienced earlier in the week.
Thursday's backlash against the brokerages came after a rough stretch for Robinhood. The trading platform last month agreed to a $65 million civil penalty to resolve charges that it misled clients about how it makes money, the Securities and Exchange Commission announced.
The SEC announcement came a day after Massachusetts regulators accused the trading app of predatory marketing "without regard for the best interest of its customers." In the complaint, Massachusetts Secretary of the Commonwealth William Galvin, a Democrat, alleged that Robinhood uses "gamification strategies" - such as displaying confetti on screen whenever users make a trade - to lure young and inexperienced customers into risky stock trading. Regulators attribute the platform's frequent outages to flawed infrastructure.
Small-account investors, including some who bought stock in GameStop and other brands targeted by the Reddit message board, reacted angrily to the suspension of trading by Robinhood and other brokerages.
Daniel Inskeep, 32, of Los Angeles, a full-time YouTuber who runs a personal finance channel, said he has been monitoring WallStreetBets for more than a month and reentered the GameStop share game last week. Inskeep said he bought in because he wanted to bank on the bullish sentiment. He also purchased stock in BlackBerry but for different reasons: He thinks the company's patents and technology for electric vehicles signal sustainability.
Inskeep said he's frustrated with Thursday's pushback from brokerage firms, three of which (Robinhood, TD Ameritrade and WeBull) he uses, as well as media coverage of the volatility. He said such actions give an advantage to bigger institutional power at the expense of inexperienced retail investors.
"There's nothing wrong with taking advantage of a short squeeze when positions are being met," he said. "It's setting retail investors up to not win in a situation that they discovered themselves, and they're taking advantage of poor decision making from hedge fund investments, and now all of a sudden the tables are turned."
Frank Merentino, 40, a carpenter in New Jersey, said he sold all of his other holdings and bought 16 shares of GameStop stock last week through Robinhood when he saw news the stock was trending. He said he joined the Reddit message board to keep up with the saga.
Thursday morning, Merentino said he watched the company's stock drop in premarket trading and tried to buy more shares. He said Robinhood canceled the transaction and flashed the message, "Order to sell has been confirmed at $140 per share." Merentino said he tried to hit cancel but the sale went through and he lost more than $2,000.
He said the app took the money from his bank account but won't transfer the sale, so he's stuck and can't move to other brokerage firms. "I just got on this GameStop thing out of luck really, and now I got screwed," he said. "I'm not an expert of Wall Street stuff, but I know if I walked down the street and took something out of somebody's pocket, I know where I'd be."
A Twitter user pointed out Thursday what she sees as a double standard: "A bunch of senators dumped their stock before coronavirus because they knew it was coming before the general public, but I can't [buy] $15 worth of AMC stock because Ameritrade said it's not fair."
THE WASHINGTON POST