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Pressed by House Committee on Buy-Side Restrictions, Robinhood CEO Says, ‘Look, I’m Sorry!’

Derek Shumway

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Screenshot of Robinhood CEO Vladimir Tenev

February 21, 2021 – “Look, I’m sorry.”

That’s what Robinhood CEO Vladimir Tenev said to those who lost money in the stock frenzy surrounding GameStop that began in late January. The virtual hearing got off to a tense start.

House Financial Services Committee Chairman  Maxine Waters, D-Calif., grilled Tenev and other chief executives involved in stock spectacle.

Both Democrats and Republicans on the committee pressed Tenev to explain why he authorized Robinhood to prevent its users from buying into GameStop stock and other popular meme stocks.

The actions, causing outrage for allegedly protecting large hedge funds against small investors, were probed throughout the hearing titled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide.”

Robinhood’s explanation

Rep. Patrick McHenry, R-N.C., asked Robinhood why it restricted the buying but not the selling of GameStop. Further, he said, why did traders get locked out of the buy side only?

Tenev replied that restricting GameStop and other securities was driven purely by depositing collateral requirements imposed by its clearing houses.

Tenev said there was no other choice but to impose restrictions. He said he sympathized with investors who lost money after GameStop stock fell from its record highs once the buying frenzy ended.

He warned that it would have been “significantly worse” if Robinhood equally prevented its users from selling the stock as well after a frenzy that began on the social media site Reddit.

Rep. Carolyn Maloney

Rep. Carolyn Maloney, D-N.Y., said that Robinhood’s actions to halt buying of certain stocks didn’t just cause confusion and anger, but undermined investor confidence in fundamental fairness.

She asked if Robinhood owed users more disclosure and transparency, and if Robinhood’s “lack of candor” with its customers may have led to wild speculation In reply, Tenev said, ”Look, I’m sorry for what happened.”

While Robinhood did not do everything perfect, it commits to improve and learn from this to prevent similar mistakes in the future, said Tenev.

In particular, she targeted Robinhood’s customer agreement, noting the vague wording regarding when the company can restrict trades.

She said that there was no language whatsoever that mentions clearing house deposit requirements Robinhood is allegedly obligated to meet, other than “volatility” being mentioned.

Citadel

Citadel CEO Kenneth Griffin, said that his company had no role in Robinhood’s decision to limit trading in GameStop or any other stock. He only became aware of Robinhood’s trading restrictions the same time the public was made aware, he said.

Citadel bet GameStop shares would fall but suffered when the shares rose because millions of small investors began buying up the stock. Citadel’s losses were not nearly as badly as another hedge fund, Melvin Capital, which took a $2 billion investment from Citadel and some of its employees to shore up its finances.

Melvin Capital

Echoing Citadel, Melvin Capital also pleaded innocence from placing pressure on Robinhood to restrict trades. Melvin Capital Management CEO Gabriel Plotkin, said he was “humbled by these unprecedented events,” and expressed regret for those who lost money.

He also said that Melvin Capital played no role in these trading decisions! Melvin closed out its positions in GameStop days before the trading restrictions went into effect.

Reddit

There was no evidence of market manipulation in this specific case surrounding GameStop, said Reddit CEO Steve Huffman. He defended Reddit moderators, who are not paid employees.

He said Reddit had an “anti-evil” team composed of engineers, data scientists, and other specialists whose focus is to ensure site integrity and protect against manipulation and spam, among other things.

Huffman did say that the popular thread called WallStreetBets, responsible for fueling the GameStop frenzy, was indeed a real community of users that supports its members who lose money as fast as it congratulates them for their successes in the stock market.

Roaring Kitty relishes the attention

Keith Gill, one of the most influential voices that pushed GameStop on the WallStreetBets Reddit forum, also testified and said he was happy to talk about his GameStop stock purchases. He is believed to have made millions as a result of his investment in GameStop which has enraged others who believe he deceptively manipulated the market in his favor with GameStop via Reddit.

Gill clarified that he was first and foremost “not a cat, not an institutional investor, and not a hedge fund.” He maintained he has no clients and does not provide any personalized investment advice for fees or commissions.

“I’m just an individual whose investment in GameStop and post on social media were based upon my own research and analysis,” he said. He worked for Mass Mutual in the past.

Stocks often trade higher or lower, said Cato Institute

Stocks often trade at higher or lower levels than what formal analysis or fundamentals may claim is best, said Jennifer Schulp, director of financial regulation studies at the Cato Institute. Even as GameStop might still be trading at a higher than fair valuation, it is no cause for concern as “markets are no strangers to bubbles.”

“I cannot opine on whether any regulatory changes are warranted on this incomplete record,” she said. “By no means, though, should these events lead to restrictions on retail investors’ access to the markets.”

Courts

Supreme Court Declares Trump First Amendment Case Moot, But Legal Issues For Social Media Coming

Benjamin Kahn

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Photo of Justice Clarence Thomas in April 2017 by Preston Keres in the public domain

April 5, 2021—Despite accepting a petition that avoids the Supreme Court deliberating on whether a president can block social media users, Justice Clarence Thomas on Monday issued a volley that may foreshadow future legal issues surrounding social media in the United States.

On Monday, the Supreme Court sent back to a lower court and ruled as moot a lawsuit over whether former President Donald Trump could block followers on Twitter, after accepting a petition by the federal government to end the case because Trump wasn’t president anymore.

The case dates back to March 2018, when the Knight First Amendment Institute and others brought a case against former president Trump in the Southern District of New York for blocking users based on their political views, arguing the practice is a violation of the first amendment.

The lower court judge agreed, and the decision was upheld by the United States Court of Appeals.

In accepting the petition by the government, Justice Thomas stated that adjudicating legal issues surrounding digital platforms is uniquely difficult. “Applying old doctrines to new digital platforms is rarely straightforward,” he wrote. The case in question hinged on the constitutionality of then-President Trump banning people from interacting with his Twitter account, which the plaintiff argued was a protected public forum.

Thomas stated that while today’s conclusion was able to be vacated, that likely would not be the case in the future. He went on to say that digital platforms exercise “concentrated control of so much speech in the hands of a few private parties.”

He continued: “We will soon have no choice but to address how our legal doctrines apply to highly concentrated, privately owned information infrastructure such as digital platforms.”

Even though Facebook and Google were not the platforms in question in this case, Thomas pointed to them as “dominant digital platforms” and stated that they have “enormous control over speech.” He stated that Google, Facebook, and Twitter have the capabilities to suppress information and speech at will, and referenced the “cataclysmic consequences” for authors that Amazon disagrees with.

Thomas also rejected the notion that other options exist.

“A person always could choose to avoid the toll bridge or train and instead swim the Charles River or hike the Oregon Trail. But in assessing whether a company exercises substantial market power, what matters is whether the alternatives are comparable.”

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Section 230

Sen. Mike Lee Promotes Bills Valuing Federal Spectrum, Requiring Content Moderation Disclosures

Tim White

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Screenshot of Mike Lee taken from Silicon Slopes event

April 5, 2021 – Sen. Mike Lee, R-Utah, said Friday spectrum used by federal agencies is not being utilized efficiently, following legislation he introduced early last year that would evaluate the allocation and value of federally-reserved spectrum.

The Government Spectrum Valuation Act, or S.553 and introduced March 3, directs the National Telecommunications and Information Administration to consult with the Federal Communications Commission and Office of Management and Budget to estimate the value of spectrum between 3 kilohertz and 95 gigahertz that is assigned to federal agencies.

Lee spoke at an event hosted by the Utah tech association Silicon Slopes on Friday about the legislation, in addition to other topics, including Section 230.

Some bands on the spectrum are reserved for federal agencies as they need it, but it’s not always managed efficiently, Lee said. Some are used by the Department of Defense for ‘national security,’ for example, but when asked what that spectrum is used for, we’re told, ‘we can’t tell you because of national security,’ he said.

“Just about everything we do on the internet is carried out through a mobile device, and all of that requires access to spectrum,” he said.

He said that lives are becoming more affected and enhanced by our connection to the internet, often through a wireless connection, which is increasing the need for the government to efficiently manage spectrum bandwidth, he said. Some of the bands are highly valuable, he said, comparing them to the “beach front property” of spectrum.

Legislation changing Section 230

Lee also spoke on Section 230, a statute that protects online companies from liability for content posted by their users. It’s a hot topic for policymakers right now as they consider regulating social media platforms.

Both Republicans and Democrats want more regulation for tech companies, but for different reasons. Democrats want more moderation against alleged hate speech or other content, citing the January 6 riot at the Capitol as one example of not enough censorship. Republicans on the other hand, including Lee, allege social media companies censor or remove right-leaning political content but do not hold the same standard for left-leaning content.

Lee highlighted that platforms have the right to be as politically-biased as they want, but it’s a problem when their terms of service or CEOs publicly state they are neutral, but then moderate content from a non-neutral standpoint, he said.

Lee expressed hesitation about repealing or changing Section 230. “If you just repealed it altogether, it would give, in my view, an undo advantage to big market incumbents,” he said. One solution is supplementing Section 230 with additional clarifying language or new legislation, he said.

That’s why he came up with the Promise Act, legislation he introduced on February 24 that would require the disclosure of rules for content moderation, and permit the Federal Trade Commission to take corrective action against companies who violate those disclosed rules. “I don’t mean it to be an exclusive solution, but I think it is a reasonably achievable step toward some type of sanity in this area,” he said.

Senator Amy Klobuchar, D-Minn., and a couple of her colleagues also drafted Section 230 legislation that would maintain the spirit of the liability provision, but would remove it for paid content.

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Section 230

Pressed by Congress, Big Tech Defends Itself and Offers Few Solutions After Capitol Riot

Tim White

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Photo of Google CEO Sundar Pichai from a December 2018 hearing before the House Judiciary Committee by Drew Clark

March 26, 2021 – The heads of the largest social media companies largely defended their platforms, reiterated what they’ve done, and offered few solutions to the problems that ail them during a congressional hearing Thursday.

But, under harsh questioning from the House Energy and Commerce Committee, none of the CEOs of Google, Facebook or Twitter were given chance to respond to questions for more than 30 to 60 seconds on a given topic.

The hearing was about misinformation on social media in the fallout of the January 6 Capitol riot. The CEOs said dealing with the problem of dis- and misinformation on their platforms is more difficult than people think.

“The responsibility here lies with the people who took the actions to break the law and do the insurrection,” Facebook CEO Mark Zuckerberg said in response to a question about whether the platforms were to blame for the riot.

“Secondarily, also, the people who spread that content, including the president, but others as well, with repeated rhetoric over time, saying that the election was rigged and encouraging people to organize. I think those people bare the primary responsibility as well,” Zuckerberg said.

Zuckerberg added that “polarization was rising in America long before social networks were even invented,” he said. He blamed the “political and media environment that drives Americans apart.”

A ‘complex question’ of fault

Google CEO Sundar Pichai said it’s a “complex question” in response to the question of who’s at fault for the riot. Twitter CEO Jack Dorsey, however, was more direct: “Yes, but you also have to take into consideration a broader ecosystem; it’s not just about the technology platforms we use,” he said.

It was the first time Zuckerberg, Dorsey and Pichai appeared on Capitol Hill since the January 6 insurrection at the U.S. Capitol. The hearing was spurred by the riot and the turbulent presidential election that concluded in Joe Biden’s win and Donald Trump’s ban from Twitter and Facebook. Congress has turned their eye toward the social media companies for several months on possible Section 230 reform to address the alleged problems in the tech industry.

“Our nation is drowning in misinformation driven by social media. Platforms that were once used to share kids with grandparents are all-too-often havens of hate, harassment and division,” said Rep. Mike Doyle, D-Penn., chairman of the Communications and Technology subcommittee, who led the hearing. Doyle alleged the platforms “supercharged” the riot.

Both Democratic and Republican members of the committee laid out a variety of grievances during the five-hour meeting, and while they didn’t all share the same concerns, all agreed that something needs to be done.

“I hope you can take away from this hearing how serious we are, on both sides of the aisle, to see many of these issues that trouble Americans addressed,” Doyle said.

Congressional concerns

On the left side of the political aisle the main criticism against the tech giants was the spread of misinformation and extremism, including COVID-19 vaccines, climate change and the 2020 presidential election that Trump alleged was rigged against him.

“It is not an exaggeration to say that your companies have fundamentally and permanently transformed our very culture, and our understanding of the world,” said Rep. Jan Schakowsky, D-Illinois. “Much of this is for good, but it is also true that our country, our democracy, even our understanding of what is ‘truth’ has been harmed by the proliferation and dissemination of misinformation and extremism,” she said.

“Unfortunately, this disinformation and extremism doesn’t just stay online, it has real-world, often dangerous and even violent consequences, and the time has come to hold online platforms accountable,” said Rep. Frank Pallone, D-N.J.

From the right, Republican members voiced concerns about too much censorship, easy access to opioids, and the harm on children they said social media has.

“I’m deeply concerned by your decisions to operate your companies in a vague and biased manner, with little to no accountability, while using Section 230 as a shield for your actions and their real-world consequences,” said Rep. Bob Latta, R-Ohio. “Your companies had the power to silence the president of the United States, shut off legitimate journalism in Australia, shut down legitimate scientific debate on a variety of issues, dictate which articles or websites are seen by Americans when they search the internet,” he said.

“Your platforms are my biggest fear as a parent,” said Rep. Cathy McMorris Rodgers, R-Washington, expressing frustration over the impact that social media has on children. “It’s a battle for their development, a battle for their mental health, and ultimately, a battle for their safety,” she said, citing a rise of teen suicides since 2011. “I do not want you defining what is true for them, I do not want their future manipulated by your algorithms,” she said.

Platforms say it’s challenging, reiterate initiatives

In response to the many criticisms, Zuckerberg made it clear that while moderating content is central to address misinformation, it is important to protect speech as much as possible while taking down illegal content, which he said can be a huge challenge. As an example, bullying hurts the victim but there’s not a clear line where we can just censor speech, he said.

Pichai said that Google’s mission is about organizing and delivering information to the world and allowing free expression while also combatting misinformation. But it’s an evolving challenge, he said, because approximately 15 percent of google searches each day are new, and 500 hours of video are uploaded to YouTube every minute. To reinforce that point, he cited the fact that 18 months ago no one had heard of COVID-19, and in 2020 ‘coronavirus’ was the most trending search.

Dorsey expressed a similar sentiment about the evolving challenge of balancing freedom of expression with content moderation. “We observe what’s happening on our service, we work to understand the ramifications, and we use that understanding to strengthen our operations. We push ourselves to improve based on the best information we have,” he said.

The best way to face new challenges is to narrow down the problem to have the greatest impact, Dorsey said. For example, disinformation is a broad concept, and we focused on disinformation leading to offline harm, he said. Twitter worked on three specific categories, he said, these included manipulated media, public health and civic integrity.

“Ultimately, we’re running a business, and a business wants to grow the number of customers it serves. Enforcing a policy is a business decision,” Dorsey said.

Dorsey noted Twitter’s new Bluesky project, a decentralized internet protocol that various social media companies would be able to utilize, rather than being owned by a single company. It will improve the social media environment by increasing innovation around business models, recommended algorithms, and moderation controls in the hands of individuals instead of private companies, he said. But others already working in a similar technology space say the project is not without its problems.

On Section 230 reform

On the question of changing Section 230 of the Telecommunications Act, which grants social media companies immunity from liability for user-generated content, Zuckerberg suggested two specific changes: Platforms need to issue transparency reports about harmful content, and need better moderation for content that is clearly illegal. These changes should only affect large social media platforms, he said, but did not specify the difference between a large and small platform.

Dorsey said those may be good ideas, but it could be difficult to determine what is a large and small platform, and having those stipulations may incentivize the wrong things.

When asked about Instagram’s new version for children, Zuckerberg confirmed it was in the planning stage and many details were still being worked out.

Several Democrats raised concerns about minority populations, citing as one example the March 16 shooting in Atlanta that killed eight people including several Asian American women. Rep. Doris Matsui, D-Cal., asked why various hashtags such as #kungflu and #chinavirus were not removed from Twitter.

Dorsey responded that Twitter does take action against hate speech, but it can also be a challenge because it’s not always simple to distinguish between content that supports an idea and counter speech that condemns the support of that idea.

The tech leaders were asked by multiple members about the platform algorithms failing to catch specific instances of content moderation. Democrats referred to examples of posts containing misinformation or hate speech, while Republicans used examples of conservative-based content being removed.

Both Zuckerberg and Dorsey said that their systems are not perfect and it’s not realistic to expect perfection. Some content will always slip by our radars that we have to address individually, Zuckerberg said.

In response to Rep. Steve Scalise’s reference to a 2020 New York Post story about Hunter Biden that was taken down, Dorsey said we have made mistakes in some instances.

Editor’s Note: This story has been revised to add in a second paragraph that more accurately captured the fact that, while the tech executives offered few solutions, they were given little opportunity to do so by members of Congress. Additionally, the word “secondarily” was added back into Facebook CEO Mark Zuckerberg’s statement about who bore responsibility for the insurrection.

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