The House Financial Services Committee may have summoned the main actors in last month’s meme-stock frenzy for a hearing, but in reality their attention was centered on the Robinhood Markets chief executive officer and his brokerage’s starring role in the saga.

Wearing a dark suit and tie, Tenev sat through more than five hours of testimony and questioning, with a majority of lawmakers focusing their attention on him. Representatives took turns accusing Robinhood of transforming the stock market into a casino and failing to protect retail investors, as well as probing the firm’s decision to restrict trading of stocks such as GameStop Corp. during the market mania. Representative Alexandria Ocasio-Cortez questioned the very business model behind the free-trading platform.

Throughout the hearing, Tenev struck a conciliatory tone, underscoring that the company would learn from the experience.

“I’m sorry for what happened,” he said. “I’m not going to say that Robinhood did everything perfect, and that we haven’t made mistakes in the past. What I commit to is making sure that we improve from this, we learn from it and we don’t make the same mistakes.”

Citadel CEO Ken Griffin and Melvin Capital Management’s Gabe Plotkin didn’t field quite as many questions from lawmakers, but made clear they had no role in Robinhood’s decision to halt trading. Reddit Inc. co-founder Steve Huffman and Keith Gill, the trader known as “Roaring Kitty,” spoke only a few times.

Tenev was quizzed on matters including why Robinhood had to put trade restrictions in place after demands from its clearinghouse spiked, whether it exposes investors to undue risk, and how it earns most of its money.

The tone of the hearing was set before the questioning even began. Representative Maxine Waters, the House committee’s chairwoman, interrupted Tenev’s introductory remarks about his immigrant background and demanded that he focus on GameStop. After asking the CEO about Robinhood’s liquidity, she again cut him off when he didn’t directly answer.

“I don’t have time, I just need a yes or no answer,” Waters said, reclaiming her time.

Payment for order flow, a widespread but little-understood revenue generator for Robinhood, came up repeatedly. The brokerage makes most of its money by sending customer trades to firms like Citadel Securities, which carry out the orders and pay Robinhood for the opportunity to do so. Tenev spent much of the day explaining that it’s legal, regulated and disclosed — and is part of the business model that supports free trading.

But lawmakers wanted more information. Toward the end of the hearing, Ocasio-Cortez asked if Robinhood would be willing, for instance, to immediately commit to share what it earns from payment for order flow with its customers.

“If removing the revenues that you make from a payment for order flow would cause the removal of free commissions, doesn’t that mean that trading on Robinhood isn’t actually free to begin with?” asked Ocasio-Cortez, a Democrat from New York.

“Robinhood is a for-profit business and needs to generate some revenue to pay for the costs of running this business,” Tenev said. “People were initially skeptical that the model even with payment for order flow would work when you remove the commissions, and I think we’ve proven that otherwise by making this the standard model by which brokerages operate now.”

Robinhood took in about $687 million from such payments in 2020, according to data from regulatory filings compiled by Bloomberg Intelligence. The firm has faced a regulatory penalty for its disclosures on the issue. In December, it agreed to pay $65 million to settle Securities and Exchange Commission claims that it failed to adequately inform customers about the practice. Robinhood neither admitted nor denied guilt.

Griffin, who was seated in a well-lit, nondescript conference room and framed by two lush plants, received a stream of questions about payments Citadel Securities makes for Robinhood’s order flow. Is it in fact so, several lawmakers asked, that retail investors get the best possible deal in that bargain? Or is it simply a way for Citadel to enrich itself?

Griffin, whose $21 billion fortune makes him one of the richest people on the planet, said the practice dates back more than a decade, is approved by regulators and benefits small investors by sparing them from exchange fees.

“We give a better price, better execution, than the alternative of going to exchanges,” he said.

Citadel Securities paid its own $22.6 million fine to regulators in 2017, settling claims that it misled customers about how it priced trades. The firm neither admitted nor denied the findings.

Deposits, Gamification

There were other tough spots for Tenev. After telling lawmakers that the total value of customer assets on Robinhood exceeds the net amount of money they’ve deposited by $35 billion, he faced questions on what that actually means for the customer. The CEO demurred when Representative Jim Himes, a Connecticut Democrat who previously worked at Goldman Sachs Group Inc., pressed him to share a rate of return Robinhood customers received.

“A hard dollar number is meaningless unless you convert it to return,” Himes said.

Reiterating that Robinhood is a force for good, Tenev said the app opens users up to the wealth-building possibilities of financial markets. When Representative Jake Auchincloss of Massachusetts, a state that accused Robinhood of gamification and initiated regulatory investigations, asked how the company was educating customers with no experience on trading options, the CEO once again pointed to the benefits of zero-commission trading and recent enhancements to the app, but didn’t answer the question.

Gene Grabowski, a partner at crisis communications firm kglobal, said the evasive answers contributed to Tenev looking “terrible.”

“As predicted, he is the villain in this drama,” Grabowski said.

Customer service has been a sticking point for Robinhood, which has been criticized for a lack of a dedicated emergency support line. Representative Sean Casten, a Democrat from Illinois, invoked the suicide of a 20-year-old user, Alexander Kearns, who hailed from his state. Kearns’s parents filed a wrongful death suit against Robinhood, saying their son panicked after he incorrectly believed he had lost $730,000 on an options trade. Tenev testified that the event was “deeply troubling” and led to changes on its options platform.

In one dramatic moment, Casten asked listeners to imagine being a nervous Robinhood customer with an urgent question, trying to call the company.

“Let’s call, and let’s listen,” he said. A pre-recorded message directed callers to Robinhood’s website or app for support.

Robinhood is offering more phone support in certain cases. In his prepared remarks Tenev mentioned that some customers were exercising worthless options contracts last month, and immediately suffering losses as a result — instead of just letting the contracts expire. Users are now required to speak to a registered representative in such cases. The company also is expanding live phone support to customers with account security problems, Tenev said in his testimony.

High-Frequency

The hearing touched on high-frequency trading, with Michigan Democrat Rashida Tlaib arguing that it lets Wall Street investors take advantage of retail investors and pension funds. She asked Griffin whether he’d support a tax on financial transactions. He pushed back, saying such a levy would “injure Americans hoping to save for retirement.”

When lawmakers turned their attention to Gill, or “Roaring Kitty,” it was to congratulate him. “You outsmarted the system,” Representative Blaine Luetkemeyer, a Missouri Republican, told him. Gill didn’t speak often, but when he did his remarks appeared to move GameStop shares, with the stock rising Thursday on his opening comments and at least on one of his answers. It still ended down 11%.

The buzz across social media was whether Gill was going to wear his signature bandana during the hearing (he didn’t). Instead, it was hanging on a cat poster in the background.

Gill provided what was perhaps the most memorable quip of the day, when he began his testimony by clarifying: “I am not a cat.”