Congresswoman Jaime Herrera Beutler
Southwest Washington Congresswoman Jaime Herrera Beutler, R-Battle Ground, joined 16 colleagues in calling for an investigation into stock-trading platforms that restricted the purchase of some “meme stocks,” including shares of GameStop, last week.
The move comes after a turbulent week on the stock market, which many characterized as a standoff between amateur investors and hedge fund giants.
“These drastic and potentially illegal market access changes appear to disproportionately benefit large institutional investors at the expense of individual retail investors,” read the letter, which was addressed to Allison Lee, acting chairwoman of the Security and Exchange Commission (SEC).
Last week, an army of amateur investors, organized largely on Reddit, began buying up shares of GameStop, catapulting its value to eye-popping levels. At the same time, hedge fund giants were “shorting” the same stock, betting big money on the company’s decline. As prices instead soared, some big-name investors were “short squeezed” — costing them billions of dollars while some first-time traders won big.
More young investors quickly piled on to what many saw as a revolutionary challenge to the power of Wall Street.
But when stock trading platforms — most notably Robinhood — suddenly put restrictions on the purchase of those stocks, many disillusioned users felt the platform was rigging the system to protect wealthy traders. Internet memes quickly ensued, many of which hinged on Robinhood’s namesake, crying ‘hypocrisy’ over a platform claiming to “democratize finance for all.”
In their letter to the SEC, members of Congress demurred Robinhood’s claim that the restrictions were due to “significant market volatility,” saying the New York Stock Exchange already has mechanisms in place to limit volatility and “provide a pressure release mechanism” during major market fluctuations.
The letter asks Lee whether the restrictions constitute market manipulation “given possible conflicts of interest.”
“Will the SEC commit to conducting an investigation to determine whether any of these market access decisions were made after consultation with entities that had a financial interest limiting retail investors’ ability to purchase stock in a specific company?” the letter reads.
In a statement released on Friday, Herrera Beutler called the restrictions an unfair attack on the country’s “free market principles.”
“Americans deserve integrity in our financial markets, but it appears some brokerage platforms may have broken the law by putting their thumb on the scale to protect privileged Wall Street investors over small individual investors,” she said. “While I am pleased to see the SEC plans to review possible unfair actions, I believe a formal investigation into the financial services institution and trade clearing firms who restricted the purchase of these stocks is warranted.”
In later blog posts, Robinhood offered a slightly different explanation to their trading restrictions, saying the surge of small investments, which required them to front a large amount of money, threatened the company financially.
“It was not because we wanted to stop people from buying these stocks,” the company’s Friday post reads.
Even so, the SEC announced that it would “closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities,” prompting members of the public to submit tips or complaints through sec.gov/tcr.
Anger directed at Robinhood has also informed a class action lawsuit against the platform.
