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

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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.”

Section 230

Section 230 Interpretation Debate Heats Up Ahead of Landmark Supreme Court Case

Panelists disagreed over the merits of Section 230’s protections and the extent to which they apply.

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Screenshot of speakers at the Federalist Society webinar

WASHINGTON, January 25, 2023 — With less than a month to go before the Supreme Court hears a case that could dramatically alter internet platform liability protections, speakers at a Federalist Society webinar on Tuesday were sharply divided over the merits and proper interpretation of Section 230 of the Communications Decency Act.

Gonzalez v. Google, which will go before the Supreme Court on Feb. 21, asks if Section 230 protects Google from liability for hosting terrorist content — and promoting that content via algorithmic recommendations.

If the Supreme Court agrees that “Section 230 does not protect targeted algorithmic recommendations, I don’t see a lot of the current social media platforms and the way they operate surviving,” said Ashkhen Kazaryan, a senior fellow at Stand Together.

Joel Thayer, president of the Digital Progress Institute, argued that the bare text of Section 230(c)(1) does not include any mention of the “immunities” often attributed to the statute, echoing an argument made by several Republican members of Congress.

“All the statute says is that we cannot treat interactive computer service providers or users — in this case, Google’s YouTube — as the publisher or speaker of a third-party post, such as a YouTube video,” Thayer said. “That is all. Warped interpretations from courts… have drastically moved away from the text of the statute to find Section 230(c)(1) as providing broad immunity to civil actions.”

Kazaryan disagreed with this claim, noting that the original co-authors of Section 230 — Sen. Ron Wyden, D-OR, and former Rep. Chris Cox, R-CA — have repeatedly said that Section 230 does provide immunity from civil liability under specific circumstances.

Wyden and Cox reiterated this point in a brief filed Thursday in support of Google, explaining that whether a platform is entitled to immunity under Section 230 relies on two prerequisite conditions. First, the platform must not be “responsible, in whole or in part, for the creation or development of” the content in question, as laid out in Section 230(f)(3). Second, the case must be seeking to treat the platform “as the publisher or speaker” of that content, per Section 230(c)(1).

The statute co-authors argued that Google satisfied these conditions and was therefore entitled to immunity, even if their recommendation algorithms made it easier for users to find and consume terrorist content. “Section 230 protects targeted recommendations to the same extent that it protects other forms of content presentation,” they wrote.

Despite the support of Wyden and Cox, Randolph May, president of the Free State Foundation, predicted that the case was “not going to be a clean victory for Google.” And in addition to the upcoming Supreme Court cases, both Congress and President Joe Biden could potentially attempt to reform or repeal Section 230 in the near future, May added.

May advocated for substantial reforms to Section 230 that would narrow online platforms’ immunity. He also proposed that a new rule should rely on a “reasonable duty of care” that would both preserve the interests of online platforms and also recognize the harms that fall under their control.

To establish a good replacement for Section 230, policymakers must determine whether there is “a difference between exercising editorial control over content on the one hand, and engaging in conduct relating to the distribution of content on the other hand… and if so, how you would treat those different differently in terms of establishing liability,” May said.

No matter the Supreme Court’s decision in Gonzalez v. Google, the discussion is already “shifting the Overton window on how we think about social media platforms,” Kazaryan said. “And we already see proposed regulation legislation on state and federal levels that addresses algorithms in many different ways and forms.”

Texas and Florida have already passed laws that would significantly limit social media platforms’ ability to moderate content, although both have been temporarily blocked pending litigation. Tech companies have asked the Supreme Court to take up the cases, arguing that the laws violate their First Amendment rights by forcing them to host certain speech.

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Section 230

Supreme Court Seeks Biden Administration’s Input on Texas and Florida Social Media Laws

The court has not yet agreed to hear the cases, but multiple justices have commented on their importance.

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Photo of Solicitor General Elizabeth Prelogar courtesy of the U.S. Department of Justice

WASHINGTON, January 24, 2023 — The Supreme Court on Monday asked for the Joe Biden administration’s input on a pair of state laws that would prevent social media platforms from moderating content based on viewpoint.

The Republican-backed laws in Texas and Florida both stem from allegations that tech companies are censoring conservative speech. The Texas law would restrict platforms with at least 50 million users from removing or demonetizing content based on “viewpoint.” The Florida law places significant restrictions on platforms’ ability to remove any content posted by members of certain groups, including politicians.

Two trade groups — NetChoice and the Computer & Communications Industry Association — jointly challenged both laws, meeting with mixed results in appeals courts. They, alongside many tech companies, argue that the law would violate platforms’ First Amendment right to decide what speech to host.

Tech companies also warn that the laws would force them to disseminate objectionable and even dangerous content. In an emergency application to block the Texas law from going into effect in May, the trade groups wrote that such content could include “Russia’s propaganda claiming that its invasion of Ukraine is justified, ISIS propaganda claiming that extremism is warranted, neo-Nazi or KKK screeds denying or supporting the Holocaust, and encouraging children to engage in risky or unhealthy behavior like eating disorders,”

The Supreme Court has not yet agreed to hear the cases, but multiple justices have commented on the importance of the issue.

In response to the emergency application in May, Justice Samuel Alito wrote that the case involved “issues of great importance that will plainly merit this Court’s review.” However, he disagreed with the court’s decision to block the law pending review, writing that “whether applicants are likely to succeed under existing law is quite unclear.”

Monday’s request asking Solicitor General Elizabeth Prelogar to weigh in on the cases allows the court to put off the decision for another few months.

“It is crucial that the Supreme Court ultimately resolve this matter: it would be a dangerous precedent to let government insert itself into the decisions private companies make on what material to publish or disseminate online,” CCIA President Matt Schruers said in a statement. “The First Amendment protects both the right to speak and the right not to be compelled to speak, and we should not underestimate the consequences of giving government control over online speech in a democracy.”

The Supreme Court is still scheduled to hear two other major content moderation cases next month, which will decide whether Google and Twitter can be held liable for terrorist content hosted on their respective platforms.

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Expert Opinion

Luke Lintz: The Dark Side of Banning TikTok on College Campuses

Campus TikTok bans could have negative consequences for students.

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The author of this expert opinion is Luke Lintz, co-owner of HighKey Enterprises LLC

In recent months, there have been growing concerns about the security of data shared on the popular social media app TikTok. As a result, a number of colleges and universities have decided to ban the app from their campuses.

While these bans may have been implemented with the intention of protecting students’ data, they could also have a number of negative consequences.

Banning TikTok on college campuses could also have a negative impact on the inter-accessibility of the student body. Many students use the app to connect with others who share their interests or come from similar backgrounds. For example, international students may use the app to connect with other students from their home countries, or students from underrepresented groups may use the app to connect with others who share similar experiences.

By denying them access to TikTok, colleges may be inadvertently limiting their students’ ability to form diverse and supportive communities. This can have a detrimental effect on the student experience, as students may feel isolated and disconnected from their peers. Additionally, it can also have a negative impact on the wider college community, as the ban may make it more difficult for students from different backgrounds to come together and collaborate.

Furthermore, by banning TikTok, colleges may also be missing out on the opportunity to promote diverse events on their campuses. The app is often used by students to share information about events, clubs and other activities that promote diversity and inclusivity. Without this platform, it may be more difficult for students to learn about these initiatives and for organizations to reach a wide audience.

Lastly, it’s important to note that banning TikTok on college campuses could also have a negative impact on the ability of college administrators to communicate with students. Many colleges and universities have started to use TikTok as a way to connect with students and share important information and updates. The popularity of TikTok makes it the perfect app for students to use to reach large, campus-wide audiences.

TikTok also offers a unique way for college administrators to connect with students in a more informal and engaging way. TikTok allows administrators to create videos that are fun, creative and relatable, which can help to build trust and to heighten interaction with students. Without this platform, it may be more difficult for administrators to establish this type of connection with students.

Banning TikTok from college campuses could have a number of negative consequences for students, including limiting their ability to form diverse and supportive communities, missing out on future opportunities and staying informed about what’s happening on campus. College administrators should consider the potential consequences before making a decision about banning TikTok from their campuses.

Luke Lintz is a successful businessman, entrepreneur and social media personality. Today, he is the co-owner of HighKey Enterprises LLC, which aims to revolutionize social media marketing. HighKey Enterprises is a highly rated company that has molded its global reputation by servicing high-profile clients that range from A-listers in the entertainment industry to the most successful one percent across the globe. This piece is exclusive to Broadband Breakfast.

Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to commentary@breakfast.media. The views reflected in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.

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