Robinhood’s ties to hedge funds still not clear, Warren says

Ahead of a House hearing Thursday with the company's CEO, the Massachusetts senator accused Robinhood of having inadequate cash on hand to manage a trading surge.

Sen. Elizabeth Warren accused Robinhood Markets Inc of having inadequate cash on hand to manage a trading surge and of hiding key information about consumers’ rights ahead of a House hearing Thursday with the company’s CEO.

In a Feb. 2 letter, Warren had asked Robinhood to explain its decision to restrict trading in shares of GameStop Inc. and other companies amid a frenzy that pushed shares of the video-game retailer to extraordinary levels.

“Robinhood promised to democratize trading, but hid information about its prerogative to change the rules by cutting off trades without notice — and about customers’ inability to access the courts if they believe they’ve been cheated — behind dozens of pages of legalese,” Warren said Wednesday in a statement accompanying the release of Robinhood’s response to her letter.

Warren, a Massachusetts Democrat, asked Robinhood Chief Executive Vladimir Tenev to disclose whether the restrictions might have been influenced by talks with hedge fund investors or financial services partners, including Citadel Securities.

She also sought assurances that Robinhood is meeting regulatory requirements and contractual obligations to retail customers.

“While I hope Robinhood follows through on its statement that it is open to reviewing its use of forced arbitration, the SEC should ban these harmful and exploitative clauses outright,” Warren said Wednesday, adding that “the full extent of Robinhood’s ties to giant hedge funds and market makers” was still unclear.

Warren and some other lawmakers have joined retail investors behind the surge in GameStop shares in questioning whether Robinhood imposed the trading curbs in coordination with Citadel Securities, the market maker that is one of the trading platform’s biggest sources of revenue.

Tenev and Citadel CEO Kenneth Griffin are scheduled to testify Thursday before the House Financial Services Committee.

Both Robinhood and Citadel have denied any coordination or wrongdoing.