Vlad Tenev, CEO and Co-Founder of Robinhood, in his office on July 15, 2021 in Menlo Park, California.
Kimberly White | Getty Images Entertainment | Getty Images
Robinhood executives had a lot to talk about the week Reddit users were driving a historic short squeeze in GameStop.
New documents in a lawsuit allegedly show internal conversations between executives panicking over how to meet financial requirements, debating the severity of a Reddit-driven short squeeze and contradicting the CEO’s public statements.
Plaintiffs in the claim, which was filed in the U.S. District Court in the Southern District of Florida, allege they suffered damages when Robinhood enacted trading restrictions on Jan. 28 amid volatile activity in GameStop and other meme stocks. They are suing for damages, interest and attorneys’ fees. Plaintiffs are also seeking class action status.
“As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits,” the brokerage said in a Jan. 28 blog post addressing the trading restrictions. “Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment.”
According to the suit, in one instance, Robinhood Chief Operating Officer Gretchen Howard messaged internally that the start-up was facing a “major liquidity crisis.” Publicly, the company’s chief executive said the opposite.
“There was no liquidity problem,” CEO Vlad Tenev told CNBC’s Andrew Ross Sorkin a day later, on Jan. 29.
A Robinhood spokesperson said the start-up met its liquidity obligations on January 28, and “fully satisfied its clearinghouse deposit requirement before the market opened.”
Robinhood and other brokerage firms saw unprecedented trading volume in January around heavily shorted stocks, including GameStop and AMC. The brokerage start-up, which has to deposit money to a clearinghouse based on the volume of trades, said it restricted buying of certain securities because the firm was unable to meet deposit requirements. These requirements increase when volatility goes up in case of large losses by options trades.
“This clearing thing seems pretty scary to me — I would say this is our biggest fire right now,” Robinhood’s director of engineering allegedly said in a Slack message, adding that the company could see a margin call of hundreds of millions of dollars. “In the worst case scenario we max out our credit lines and they liquidate our positions.”
According to the suit, David Dusseault, chief operating officer of subsidiary Robinhood Financial, said the company was “to [sic] big for them to actually shut us down,” referring to the National Securities Clearing Corp., a provider of centralized clearing services. In the same conversation, another executive, whose name is redacted, said “we’re going to get crucified” for stopping trades, according to the complaint.
The chats were part of the discovery process in a lawsuit against Robinhood. An attorney for the plaintiffs argued that Robinhood knew the Reddit-driven chaos was coming and didn’t do enough.
“Robinhood and its higher-ups were well aware of this tidal wave of volume and volatility that was heading in their direction,” Maurice Pessah, founder of Pessah Law Group, told CNBC. “In our opinion and as we allege in the lawsuit, they didn’t do their jobs and what they are required to do in terms of analyzing risks and managing risks as a broker.”
In response, Robinhood said it disputes the plaintiff allegations and stands by public statements regarding Jan. 28. A company spokesperson also said “the communications are consistent with Robinhood’s focus to take appropriate, incremental measures to mitigate risk.”
In another excerpt, data scientists and Tenev debated how intense the Reddit frenzy could get, according to the suit.
“Maybe I am being alarmist but I think we should consider all-hands on deck kind of situation and shuffle some priorities to deal with increasing volumes,” Robinhood’s director of engineering allegedly wrote. The company’s head of data science responded “you may not be being an alarmist” after seeing a chart showing the spike in volume, plaintiffs alleged.
“Today was a huge day. There are internal things that are starting to buckle under pressure,” another software engineer said, according to the suit.
Tenev allegedly responded that “only the paranoid survive.” His response to a comment that “one who panics first panics best” was “joy.”
In another message, the company acknowledged “blowback from this is going to be exponentially worse as time goes on” and they “were worried about the long term affects [sic] of this,” according to the suit.
In the months that followed these conversations, Robinhood’s CEO as well as the CEOs of Citadel and Melville Capital testified in front of Congress. Tenev told the representatives that the GameStop mania was a 1 in 3.5 million event, which he called “unmodelable” and that Robinhood’s risk management processes kicked in as they were meant to. In order to meet capital requirements and shore up its balance sheet, Robinhood raised more than $3.4 billion in a matter of days.
The company went on to a blockbuster public listing in August.
Securities and Exchange Commission Chair Gary Gensler is expected to publish a report on the GameStop saga in the coming weeks, as well as recommendations on what, if any, changes should be made to the U.S. trading system as a result.
Twitter and Square CEO Jack Dorsey says ‘hyperinflation’ will happen soon in the U.S. and the world
Jack Dorsey, CEO of Twitter and co-founder & CEO of Square, speaks during the crypto-currency conference Bitcoin 2021 Convention at the Mana Convention Center in Miami, Florida, on June 4, 2021.
Marco Bello | AFP | Getty Images
Twitter co-founder Jack Dorsey weighed in on escalating inflation in the U.S., saying things are going to get considerably worse.
“Hyperinflation is going to change everything,” Dorsey tweeted Friday night. “It’s happening.”
The tweet comes with consumer price inflation running near a 30-year high in the U.S. and growing concern that the problem could be worse that policymakers have anticipated.
On Friday, Federal Reserve Chairman Jerome Powell acknowledged that inflation pressures “are likely to last longer than previously expected,” noting that they could run “well into next year.” The central bank leader added that he expects the Fed soon to begin pulling back on the extraordinary measures it has provided to help the economy that critics say have stoked the inflation run.
In addition to overseeing a social media platform that has 206 million active daily users, Dorsey is a strong bitcoin advocate. He has said that Square, the debit and credit card processing platform that Dorsey co-founded, is looking at getting into mining the cryptocurrency. Square also owns some bitcoin and facilitates trading in it.
Responding to user comments, Dorsey added Friday that he sees the inflation problem escalating around the globe. “It will happen in the US soon, and so the world,” he tweeted. Dorsey is currently both the CEO of Twitter and Square.
It’s one thing to call for faster inflation, but it may be surprising to some that Dorsey used the word hyperinflation, a condition of rapidly rising prices that can ruin currencies and bring down whole economies.
“Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment,” Jones said Wednesday.
But most of the major investors have not gone so far as to call for hyperinflation like Dorsey.
Alec Baldwin fatal prop gun shooting raises questions about working conditions
While injuries or death from prop firearms are extremely rare, the accidental killing of Halyna Hutchins on a Sante Fe movie set Thursday has sparked inquiries about working conditions for Hollywood crew members.
“I’ve been in the industry 21 years,” said Kevin Williams, the prop department supervisor at the UCLA School of Theater, Film and Television. “I have not heard of any circumstances like this. So, this is definitely one of these things, and it sounds like a cliche to say, but it really sounds like a freak accident.”
The circumstances of the shooting are under investigation. The Santa Fe County Sheriff’s office confirmed that actor Alec Baldwin fired a prop gun on the set of “Rust,” a Western being filmed at the Bonanza Creek Ranch, killing the film’s director of photography and injuring its director, Joel Souza.
Security guards and a compliance officer at New Mexico’s Bonanza Creek Ranch on Oct. 22, 2021, the film set where actor Alec Baldwin fatally shot cinematographer Halyna Hutchins and wounded a director when he discharged a prop gun.
Adria Malcolm | Reuters
Souza has since been discharged from the hospital. No charges have been filed. The Santa Fe County Sheriff’s office did not immediately respond to CNBC’s request for comment.
While it’s unclear at this point what exactly transpired Thursday, many in the industry have begun to inquire about working conditions on set. These queries come as the International Alliance of Theatrical Stage Employees works to finalize a new three-year contract with the Alliance of Motion Picture and Television Producers that addresses the union’s calls for better working hours, safer workplace conditions and improved benefits.
“There have been times that I have been on projects for 18 to 20 hours and then been asked to return in six,” Williams said.
The IATSE issued a statement Friday addressing Hutchins’ death and encouraging its members to contact the union’s safety hotline if they feel unsafe on set.
“Our entire alliance mourns this unspeakable loss with Halyna’s family, friends, and the ‘Rust’ crew,” the statement read. “Creating a culture of safety requires relentless vigilance from every one of us, day in and day out. Please, if you see something, say something.”
The union declined to comment further.
A person familiar with the matter told NBC News that half a dozen camera crew workers walked off the “Rust” set in protest of working conditions just hours before the shooting took place. Among their concerns were multiple misfires of the prop gun.
Earlier Friday, the Los Angeles Times reported, citing three unnamed people involved with the production, that the crew was frustrated with the production’s long hours. It also alleged that there were two previous prop gun misfires on set, one the previous week and one on Saturday.
”The safety of our cast and crew is the top priority of Rust Productions and everyone associated with the company,” Rust Movie Productions said in a statement provided to CNBC. “Though we were not made aware of any official complaints concerning weapon or prop safety on set, we will be conducting an internal review of our procedures while production is shut down.”
Rust Productions is cooperating with the Santa Fe authorities in their investigation.
Hollywood productions typically adhere to strict safety measures for stunt work, particularly when it comes to weapon and prop safety. The Industry-Wide Labor-Management Safety Committee has written and distributed safety bulletins on best practices for television and movie productions.
“Blanks can kill,” the first bulletin reads. “Treat all firearms as though they are loaded. ‘Live ammunition’ is never to be used nor brought onto any studio lot or stage.”
These guidelines are recommendations and may not apply to reality shows such as “Mythbusters” or “Top Shot” where live rounds are used to test scientific theories or for marksmanship competition.
“I can say unequivocally that a blank round versus a live round is really easy to identify in the hands of an experienced armorer or prop master,” Williams said. “I can’t imagine anybody would say ‘whoops’ and just put that in there.”
He also noted that safety demonstrations are done with all cast and crew involved in firearm stunts who are instructed that prop weapons should never be pointed at another actor or crew member. In cases where a director wants to film a weapon being pointed at the camera and discharged, ballistic shields are used, he said.
“There are a lot of safety measures put in place,” he said. “If it turns out that a live round was loaded into a vintage weapon and it turns out that that is how this happened, then we need to figure out why.”
That’s a “potential failure in the system,” Williams said.
U.S. officials keep close watch on the ‘delta plus’ mutation as it spreads in the U.K.
Dr. Rochelle Walensky, Director of the Centers for Disease Control and Prevention, testifies before a Senate Health, Education, Labor and Pensions Committee hearing at the U.S. Capitol on May 11, 2021.
Jim Lo Scalzo | Pool | Reuters
U.S. health officials are keeping a close eye on an emerging Covid-19 subvariant, dubbed “delta plus,” that some scientists say may be more contagious than the already highly transmissible delta variant.
Formally known as AY.4.2, delta plus includes two new mutations to the spike protein, A222V and Y145H, which allow the virus to enter the body. Those mutations have been found in other Covid variants, so it’s unclear how dramatically those changes affect the virus.
Francois Balloux, director of the Genetics Institute at University College London, said it could be 10%-15% more contagious than delta, which first appeared in India and spreads easier than Ebola, SARS, MERS and the 1918 Spanish flu, according to the Centers for Disease Control and Prevention.
Delta has an R-naught, or reproductive rate, of eight or nine, according to CDC Director Dr. Rochelle Walensky, meaning that every person who has Covid will spread it to up to nine other people. The “wild type” or original strain of Covid had an estimated R-naught of about three. Someone infected with the delta variant carries 1,000 times the viral load of the original Covid strain.
India’s Ministry of Health reported in June that delta plus was more transmissible than the delta variant, adding that the subtype binds more strongly to lung cell receptors and could even reduce the effectiveness of monoclonal antibody treatments.
The mutation has been detected in the U.S., but there hasn’t been a noticeable uptick in delta plus cases nationwide, Walensky said at a White House Covid briefing Wednesday.
“We particularly monitor for sublineages that could impact therapeutics, such as monoclonal antibodies and vaccines,” Walensky said. “At this time, there is no evidence that the sublineage AY.4.2 impacts the effectiveness of our current vaccines or therapeutics.”
The AY.4.2 subvariant has been detected in at least five cases in the U.S. since August: in Washington, D.C., California, North Carolina, Washington state and Massachusetts, according to Outbreak.info. The website collects data from GISAID, a global genomic database on Covid and influenza cases.
Top health authorities have cautioned for weeks that more powerful and potentially vaccine-resistant Covid variants could develop as long as widespread outbreaks continue to occur, fueled by billions of people worldwide who remain unvaccinated. White House chief medical advisor Dr. Anthony Fauci said in August that the U.S. could be “in trouble” if another mutation surpassed delta, asking the unvaccinated to get their shots in hopes of curbing a surge that crushed the nation’s health-care systems this summer.
Delta plus could also eventually affect the age groups eligible to receive Covid booster doses, Dr. Peter Marks, the Food and Drug Administration’s lead vaccine regulator, said Wednesday night. The FDA and CDC have authorized Covid boosters for a wide array of adults in the U.S. from all three manufacturers in the U.S.: Moderna, Johnson & Johnson and Pfizer.
“The exact age of that will be based on what we see of the emerging situation, which is quite dynamic right now because we continue to see reports of new variants coming up,” Marks said. “And we’re also seeing changes in the epidemiology of Covid-19 in our country right now with new hotspots coming up even as certain places die down.”
Concerns over delta plus are running high in the U.K., where officials are battling a surge in cases and facing a renewed health crisis. Delta plus cases represented roughly 6% of all sequenced Covid cases as of the week beginning Sept. 27, according to the latest data from the country’s Health Security Agency. The sublineage is “increasing in frequency” in the U.K., the agency noted, and doctors from the National Health Service Confederation in London are calling for a return to stricter Covid protocols heading into the winter.
But global health leaders are urging the public not to panic. Though the emergence of a Covid subtype isn’t the same as an entirely new variant evolving, keeping track of delta’s progression could allow the medical community to better understand the mutation, Dr. Sylvain Aldighieri, Covid-19 incident manager at the World Health Organization’s regional branch for the Americas, said at a briefing Oct. 6.
“Looking to these additional changes, it may help researchers to track the variants on a fine scale,” Aldighieri said. “But they do not imply any functional or biological difference.”
— CNBC’s Holly Ellyatt in London contributed to this report.
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