Citadel’s Ken Griffin lobbied his way out of the “meme stock” scandal of 2021 when Citadel and Robinhood colluded just a night prior to the trading halts.
On February 18, 2021, he testified before the House Financial Services Committee about his role in the ‘meme stock’ controversy.
However, Ken Griffin donated money directly to four members of the committee, Republicans French Hill, Andy Barr, Ann Wagner, and Bill Huizenga, per Chicago Business.
The retail community is raising awareness of these actions today when lobbied congressmen still have the power to sweep market injustices under the rug.
Investors on social media say that in other places of the world this is called bribery.
“The game is not fair and it never has been. Individual investors, even when operating in a swarm, are destined to lose. How do I know? I helped design the game,” said ex-Citadel Data Scientist Patrick McConlogue.
Patrick McConlogue appeared on Fox Business during the ‘meme stock’ frenzy of 2021 when retail investors created one of the biggest scares in Wall Street history.
GameStop and AMC shareholders were able to create panic on Wall Street by heavily buying shares of the overleveraged shorted stocks.
As share prices soared, short sellers experienced massive losses.
GameStop was able to put Melvin Capital out of business, but Patrick McConlogue says other hedge funds were able to make back billions in losses during the halt.
The halts allowed hedge funds to enter AMC and GameStop knowing shares would plummet, allowing them to capitalize on the deflation of the price.
Citadel and Robinhood Colluded But There Was No Justice for Investors
The U.S. House Committee on Financial Services published a press release stating Robinhood and Citadel Securities engaged in ‘blunt’ negotiations before the trading of ‘meme stocks’ occurred.
The press release states that talks regarding lowering PFOF (payment for order flow) rates happened just a night before trading restrictions.
The “GameStopped” report issued by the U.S. House Committee on Financial Services greatly details how the NSCC saved Robinhood from defaulting due to failing to meet collateral obligations.
On January 28th, 2021, Robinhood routed orders to six market makers for equities: Citadel Securities, G1 Execution Services, Morgan Stanley, Two Sigma Securities, Virtu, and Wolverine.
The conversations between Robinhood and Citadel were tense as the two negotiated the price of PFOF rebate rates and price caps for AMC and GameStop.
Furthermore, Robinhood received a massive waiver of its deposit requirement from the DTCC.
And according to the report, without this waiver, Robinhood would have defaulted on its regulatory collateral obligations.
NSCC officials say the waiver was necessary to avoid systemic risk to the market.
The DTCC waived a total of $9.7 billion of collateral deposit requirements on January 28, 2021.
Robinhood is Being Sued in New Lawsuit
According to Business Insider, the court said at the time that the evidence between Citadel Securities and Robinhood was not sufficient.
But there is now a new lawsuit against Robinhood in 2023 which alleges that on January 28, 2021, Robinhood prohibited purchases of the stocks underlying the affected options on its platform and also prohibited purchases of the exercise of the affected options, and only allowed the closing out of such positions.
The lawsuit further alleges that during the period January 29, 2021 through February 4, 2021, Robinhood imposed significant limits on any purchases and continued to prevent the exercise of the affected options on its trading platform.
Consequently, the value of the affected options dropped dramatically and remained suppressed throughout the month, causing investors to suffer big losses, says the press release.
Ken Griffin’s Citadel may have been able to lobby themselves out of the situation, but Robinhood has litigation matters to attend to this year.
This raises questions about how government officials will ever be able to aid retail investors when lobbied congressmen can easily take opposing sides.
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