Robinhood CEO Vlad Tenev
Photo Illustration: Spencer Platt/Getty Images; Christopher T. Fong/Protocol

The internet isn’t buying Robinhood’s GameStop story

Protocol Fintech

Hello and welcome to Protocol | Fintech! This Friday: Robinhood's GameStop wound; Gary Gensler, cryptoskeptic; and Square meets TikTok.

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The Big Story

The Robinhood question

"Are we good guys or bad guys?"

In Disney's 1973 "Robin Hood," Robin laughs off Little John's question about the whole robbing-the-rich thing: "Rob? That's a naughty word, we never rob! We just … borrow a bit from those who can afford it."

Robinhood CEO Vlad Tenev could use some of his corporate namesake's panache right now. Once boosted by fans of its no-commission trading on Reddit, he now faces a Twitter mob. They've gone from swapping signup codes to posting snippets from legal complaints in lawsuits filed after January's GameStop debacle.

This much isn't disputed: Robinhood blocked buying of GameStop, AMC and other meme stocks on Jan. 28. That prompted dozens of lawsuits, now consolidated into the two related complaints Robinhood faces in a federal court in Miami.

In the aftermath, the company swatted away accusations that it had restricted trading in GameStop and other stocks to help a big hedge fund get out of a short squeeze. Robinhood has said it had to block the trades to meet regulatory capital requirements, which can dramatically increase for volatile stocks.

But the lawsuits seek to paint a different picture, presenting internal company communications that suggest the company did shut down the trades under pressure from Citadel Securities, a key partner.

Robinhood and Citadel denied that they did anything illegal. But the uproar has renewed the question: Whose side is Robinhood on?

The lawsuits present suspicious conversations. The complaints cite a host of emails and chat messages uncovered in the case. It should be noted that it's hard to figure out the context of some of the exchanges described in the complaint.

  • Conversations before and during the Jan. 28 trading frenzy show that "high level employees of Citadel Securities and Robinhood had numerous communications with each other that indicate that Citadel applied pressure on Robinhood," one complaint charges.
  • It includes an email from a Citadel vice president to Robinhood "personnel," including Robinhood Securities President Jim Swartwout, that a Citadel executive (whose name was redacted in the filing) "whom (Robinhood CEO) Vlad (Tenev) has met before, is available … to speak to Vlad." This was the day of the GameStop fiasco, suggesting the two companies were communicating and even coordinating amid the chaos.
  • One chat message sent by Swartwout on Jan. 27 has drawn much attention: "You wouldn't believe the convo we had with Citadel. total mess."

"I sold my AMC today." That was the startling admission Swartwout made in an email cited in the other related lawsuit.

  • Swartwout is a FINRA-registered broker with 29 years of experience. FINRA, the securities industry's self-regulatory body, is explicit about this: "It is illegal to use or pass on to others material, nonpublic information or enter into transactions while in possession of such information."
  • Robinhood declined to comment. Fox Business correspondent Charlie Gasparino, citing unnamed sources, said on Twitter that the SEC was looking into the trading. Swartwout may not actually have done well on the trade, the journalist's sources suggested.
  • But what was he doing trading in a stock his firm was so intimately tied up with? As Gasparino put it, "Optics aren't good."
  • Robert Siegel, a Stanford management lecturer and Silicon Valley investor, told Protocol that "based on what is presented" in the lawsuits, it's an "example of failed governance."

Robinhood and Citadel pushed back loudly. Robinhood blasted the lawsuits as an "attempt to create a false narrative of collusion," and vowed to "work vigorously to continue correcting the record with the facts," a spokesperson said.

  • "At no point did Citadel or any other market maker pressure" Robinhood during the GameStop trading frenzy, the spokesperson said.
  • Citadel fired its own volleys, especially after its founder Ken Griffin became the target of a viral Twitter hashtag, #KenGriffinLied. Critics accused Griffin of lying to Congress earlier in the year when asked about whether he communicated with Robinhood's top execs about the January trade restrictions.
  • "Twitter mobs try to ignore the facts," Citadel Securities tweeted, dismissing the new attacks as wild conspiracy theories: "There are those who still refuse to believe an American landed on the moon."

Is that enough to quiet Robinhood's critics? Hardly. And it's reasonable to expect that fresh filings in the twin Florida lawsuits will continue to feed suspicions.

  • That's because questions still swirl around Robinhood's business model, which is built around taking tiny slices from every transaction through a system called payment for order flow, rather than flat trading commissions.
  • Tenev tried to turn things around in a Wall Street journal op-ed titled "Robinhood Users Come Under Attack," in which he warned: "Making it more difficult to invest would hurt those who were shut out of the financial system for decades."
  • Put another way: "We just … borrow a bit from those who can afford it." Robinhood didn't create payment for order flow, but with help from willing partners like Citadel Securities, it finessed the system into a highly profitable revenue stream.
  • It may not last. SEC Chairman Gary Gensler has criticized payment for order flow as posing inevitable conflicts of interest for brokers. It is hard to judge "whether anyone broke the law when Robinhood turned off GameStop trading," said Klaros Group Partner Michele Alt. But clearly, she told Protocol, "regulators are taking an increasingly close look at innovative financial services" like Robinhood.

GameStop represented a loss of innocence for Robinhood's customers. Blocking meme-stock purchases may have been inevitable, given Wall Street's antiquated system for settling trades (which Tenev has criticized). But it made many traders feel like the company wasn't on their side. The company may have answers for the questions raised by the lawsuits. But Tenev has to remember: He's getting tried in the court of public opinion, too.

-- Benjamin Pimentel


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From Protocol | Fintech

An Ethereum co-founder wants to end "crypto nationalism."Polkadot co-founder Gavin Wood explains why he left the blockchain to build a multichain world.

The CFPB has a new boss. Rohit Chopra has been confirmed as head of the Consumer Financial Protection Bureau.

Buy crypto now, maybe spend crypto later? Affirm, the big "buy now, pay later" company, will let users buy and sell cryptocurrencies in a major push deeper into financial services. One small wrinkle Affirm may need to iron out: Its terms of service currently ban cryptocurrency purchases.


  • "Developers are the new bankers. These tend to be higher-paying positions, so it may be the case that while banks reduce headcount, they don't lower compensation as quickly."Mike Mayo, a Wells Fargo banking analyst, in a report that predicts 100,000 job cuts at banks over the next five years as the firms focus on automation and technology.
  • "This crypto space is now certainly of a size that without those investor protections of banking, insurance[and] securities laws [and] market oversight, I do think somebody is going to get hurt. A lot of people are likely to get hurt." —Securities and Exchange Commission Chairman Gary Gensler at the Code Conference on Wednesday.
  • "I would say they should do nothing. What do you think governments can do?"Elon Musk, answering a question at the Code Conference about what the government should do about crypto.
  • "The elephant in the room is whether you're going to be renominated. I know that some argue that your deregulatory actions are mostly harmless. I disagree." —Sen. Elizabeth Warren, to Federal Reserve chair Jerome Powell at a hearing this week.

3 Questions With …

Harry Temkin, CIO, DriveWealth

What fintech trend is most troubling for you?

"Buy now, pay later" can be a life raft for economically stressed individuals in periods of unemployment. However, easy-to-acquire credit can encourage people to spend money they don't have on nonessentials and potentially compromise their longer-term credit rating or financial health.

What fintech company have you been most impressed with this past year?

Companies like Grifin that are making the stock market more approachable have been most impressive to me over the past year. [Editor's note: DriveWealth powers Grifin's stock trading.] Investing can be an emotional experience for first-time investors. But with Grifin, buying stock is as easy as buying a cup of coffee. Every time a user spends money at their local Starbucks or Whole Foods, the app automatically invests $1 in that company. It lets consumers invest small amounts of money into the very brands they consume.

What fintech sector or company is most underrated or overrated right now?

Crypto is probably both the most overrated and underrated fintech sector right now. Crypto as a fungible currency, or a national currency like in El Salvador, is overrated. Crypto pricing is still highly volatile, which makes it unsuitable for investors with low risk profiles or capital preservation strategies. Furthermore, it takes up to 10 minutes to confirm if the funds are good, which slows the pace of the transfer of payment for goods and services. Enhancements that are coming later this year in bitcoin will make confirmations near-real time.

Need to Know

  • Visa is working on interoperable CBDC technology. The payments giant has detailed its its "universal payments channel" concept for central bank digital currencies.
  • Evolve Funds launched a crypto ETF. The Canadian ETF provider has introduced the country's first multi-crypto ETF, while the SEC is still stalling approvals for crypto ETFs in the U.S.
  • Square hooked up with TikTok. Square sellers can now attract users via TikTok videos, ads and shopping tabs on their profile. That sounds more lucrative than just dropping your cashtag.
  • Mastercard wants in on "buy now, pay later." Mastercard Installments is planned to start in the U.S., Australia, and U.K. in Q1 2022.

Making Moves

  • Leela Srinivasan joined as CMO. She was previously at Momentive. Kerry Van Voris, previously of Oscar Health, is joining as chief human resources officer. The company is weighing an IPO but may raise a new round first, CEO Guillaume Pousaz told Bloomberg.
  • Binance hired former IRS special agent Tigran Gambaryan. He'll be VP of global intelligence and investigations as the crypto marketplace tries to make nice with regulators.

Deal Flow

  • Alloy is now worth $1.35 billion. The identity technology company for banks and fintechs raised $100 million led by Lightspeed.
  • Zero Hash raised $35 million. The company, which provides crypto trading custody and rewards infrastructure as a service, has clients such as MoneyLion.
  • Pakistan's QisstPay raised $15 million. The "buy now, pay later" startup focuses on Pakistan, showing the global growth in the sector.


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Data Point

$54 billion

That's the value of bank mergers and acquisitions from January through September, which is on pace to make 2021 the biggest year for such deals since the dire days of 2008, which saw a lot of shotgun bank marriages.

Thanks for reading — see you Tuesday!

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