Citadel Securities faces new pressure on GameStop Frenzy

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Billionaire Ken Griffin’s e-commerce firm Citadel Securities faces further criticism for role in January trading frenzy over GameStop shares Corp.

GME -5.74%

after new information surfaced in a lawsuit.

The unusual statement came as the #KenGriffinLied hashtag was trending on Twitter.

The fury was sparked by internal Robinhood communications made public last week in a lawsuit filed by investors who have been affected by the trade restrictions. The lawsuit seeks damages from Robinhood and a number of other brokerage firms, as well as Citadel Securities and certain companies that clear off stock transactions.

The communications showed that executives at Robinhood and Citadel Securities had discussions in the days leading up to the Jan. 28 move, when the two companies grappled with increased trading volumes in meme shares. While the communications are not clear on what the companies discussed, they do indicate that the talks have been acrimonious. In an internal chat message dated Jan. 27, Robinhood’s stock exchange division president Jim Swartwout said “you wouldn’t believe the conversation we had with Citadel. Total mess. “

Lawyers for the plaintiffs said in a court file last week that communications showed Citadel Securities pressured Robinhood to restrict transactions by small investors.

Citadel Securities, which fulfills many orders submitted by Robinhood clients, denied that it exerted such pressure. In February, Mr. Griffin, the company’s founder and largest shareholder, said in written testimony to the House Financial Services Committee that his company “played no role in Robinhood’s decision to limit trading on GameStop or on any other title “meme” “.

The trading company reiterated its position on Tuesday. “Conspiracy theorists and plaintiff attorneys are trying to cook up an absurd story out of regular communications between Citadel Securities and the brokers who process orders for retail investors,” Citadel Securities said in the statement.

The company said its discussions with brokerage houses during the GameStop frenzy were aimed at ensuring market stability. “Amid an unprecedented increase in retail engagement, our respective teams have ensured that operational demands are addressed and retail investors have access to the superior execution capabilities of Citadel Securities.” , said Citadel Securities.

A Robinhood spokeswoman on Tuesday denied that Citadel Securities pressured the brokerage to impose the trading restrictions.

“These complaints attempt to create a false narrative of collusion, and we will work vigorously to continue to correct the case with the facts,” she said. “In times of market tension, it is normal and advisable to communicate even more with our market places.

Joseph Saveri, an attorney for the plaintiffs, said the communications uncovered by the trial spoke for themselves.

“What may appear to be ‘lawful’ conduct for conspirators may fall squarely within the scope of illegal and anti-competitive conduct,” he said. “The defendants’ actions have seriously hurt retail investors, and we are determined to effectively litigate this case on their behalf and prepare the case for trial.”

Robinhood said it imposed the trading restrictions on Jan. 28 due to a $ 3 billion margin call that morning from the Depository Trust & Clearing Corp., which operates the U.S. stock trading clearinghouse. By imposing the limits, Robinhood reduced the amount of money he needed to mail to the clearinghouse. DTCC corroborated Robinhood’s account.

The GameStop stock price fell 44% on Jan.28 after a number of brokerage houses imposed limits, preventing many investors from buying the shares or increasing their holdings. The video game retailer’s stock price had risen earlier, supported by a massive campaign on Reddit and other social media sites in which investors touted GameStop and a few other stocks.

The episode has generated several hearings in Congress and is expected to be the subject of a soon to be released report by the Securities and Exchange Commission.

E-commerce companies such as Citadel Securities pay retail brokers the right to execute their clients’ stock and option purchase orders, a practice known as payment for order flow. SEC Chairman Gary Gensler said the agency was looking at payment order flow as part of a larger look at the structure of the U.S. stock market prompted by the stock-meme phenomenon.

Following GameStop’s trading frenzy, the SEC is expected to take a new look at order flow payment, a decades-old practice that is at the heart of how commission-free trading works. WSJ explains what it is and why critics say it’s bad for investors. Illustration: Jacob Reynolds / WSJ

Write to Alexandre Osipovich at [email protected]

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