Robinhood’s 33-year-old Bulgarian-born. billionaire CEO Vlad Tenev has a lot of explaining to do when his “democratized” free trading platform halted trading, Thrusday, Jan. 28 of GameStock [GME] and 49 other stocks. Tenev tried to get ahead of the Congressional and Security and Exchange Commission [SEC] investigations. But the more Tenev tries to dance around the topic, the more liable he and his company becomes. Tenev claimed he curbed trading on so-called “meme stocks,” stocks that went viral when social networks like Reddit created a buying frenzy surrounding certain stocks, especially the moribund retail gaming company GameStock {GME]. Tenev claims he got a rude wakeup call from National Clearing Corporation [NSCC] that settles trades, actually covers the cash, demanding $3 billion. Tenev, of course, didn’t have the cash and halted trading before Robinhood went under.
Settling trades requires more than thin air, demanding cash to cover all trades, especially when GME jumped from $17 to over $400 a share, prompting the buying frenzy that rained on Wall Street’s biggest hedge funds that were short-selling GME. “Spill the beans, man—what happened last week?” Elon Musk, the world’s richest man, asked Tenev today on Clubhouse, an audio-streaming app. Musk, who knows a lot about Wall Street, surviving rapacious hedge funds on his electric car company Tesla Motors Inc. Musk complained mightily when Wall Street’s hedge funds kept short-selling Tesla stock, driving share prices down, prompting the mercurial CEO to threaten to take Tesla private Aug 8, 2018, causing a massive sell-off, prompting Congressional and SEC investigations. Musk knows all about the SEC when he was forced to resign Spet. 29, 2018 as Chairman of Tesla’s board and pay $20 million fine.
When your consider what Musk did it 2018, it’s small potatoes compared to Tenev, who, as a SEC-certified trading platform, threw his investors under the bus. When you halt trading, which Wall Street’s major exchanges do under the most draconic circumstances like the 2,000 tech bubble or 2008 financial collapse, it harms investors looking to buy-or-sell shares. “The people demand an answer, and they want to know the details and the truth,” Musk told Tenev. Tenev danced around the question, talking about “technical” details he didn’t want to talk about with clearing trades with National Securities Clearing Corporation. [NSCC]. Tenev said he received an early morning call, Thursday, Jan. 28, from NSCC demanding he deposit $3 billion to cover trades on his “meme stocks,” those stocks that went viral like GME. Tenev was shocked at the figure demanded by NSCC, promptly halting trading.
Tenev admitted to Musk on Clubhouse today that Robinhood had raised roughly $2 billion since the Menlo Park, Calif. company starting operations April 18, 2013. “Just to give context, Robinhood, up until that point, has raised . . . around $2 billion in total venture capital up until now,” Tenev said. “So it’s a big number,” referring to the demand by NSCC for $2 billion to cover trades. NSCC lowered the amount to $700 million, apparently something Tenev could handle. Robinhood outlined to NSCC a plan for managing risks, like the ones that hit Jan. 28, when trading volume, outpaced the company’s capital requirements for clearing trades. Tenev was in pure survival mode when the halted trading on some 50 stocks, something he saw as a threat to Robinhood’s solvency. When Reddit helped boost the frenzy in GME, it cost Wall Street hedge funds some $16 billion.
Musk raised the point that if NSCC shook down Tenev for $2 billion prompting Robinhood’s trading curb, the public has a right to know why? Like margin requirements at brokerage houses, when customers exceed their credit limit, brokerage house can freeze trading accounts. Musk wanted Tenev to admit that NSCC threatened to stop Robinhood from operations unless they ponied up the cash. “I guess people really just want to know—if you had no choice, then you had no choice, if it’s a gun-to-the-head situation. And then that’s understandable” Musk told Tenev. “But then whoever put that gun to your head should be willing to answer to the public,” calling into question whether Tenev just tried to save his bacon or whether NSCC had the power to halt Robinhood’s transactions. Musk, who had his own run in with hedge fund short sellers, wanted to know whether NSCC was under pressure.
When hedge funds lose some $16 billion to private investors using a free trading platform like Robinhood, there’s going to be hell to pay for it. Billionaire Point72 Asset Management hedge fund CEO Steve Cohen, owner of the New York Mets, couldn’t have been happy with Tenev sabotaging his hedge fund, whether it was legal or not. “Is anyone holding you hostage right now?” Musk asked Tenev. “No, I’m Ok,” Tenev told Musk, not answering what happened last Thursday. Whatever margin requirements changed with NSCC last Thursday, the question is why? Did NSCC CEO Michael Bodson get a call from someone, like Cohen, saying “what the ‘F’ is going on with Robinhood.” “We’ve just lost $16 billion.” Or did Robinhood really breach NSCC margin requirements? Musk’s question, “Is anyone holding you hostage right now?” implies that something else happened last Thursday morning.
