He asked the moderators to turn on audio for Robinhood chief executive Vladimir Tenev, who was also on the session, so he could talk.
That is when Musk launched a torrent of questions, a CEO-to-CEO showdown over why the trading app halted trading on the market’s hottest stocks at one point last week.
“Spill the beans, man,” Musk said to Tenev, whom the Tesla CEO introduced as “Vlad the stock impaler.” “What happened last week? Why couldn’t people buy the GameStop shares? The people demand answers, and they want to know the truth.”
Tenev, who said some of the concerns raised by Musk waded into conspiracy theory, found himself forced to defend his company’s actions.
Online ire erupted last week at the consumer trading app Robinhood when the company restricted buying for GameStop, AMC Entertainment and other stocks as their share prices soared, fueled by a social media push to buy into the companies. Reddit users on the discussion board /r/wallstreetbets encouraged one another to buy and hold GameStop stock, which they viewed as undervalued, and revolt against deep-pocketed hedge funds that had shorted the stock.
GameStop’s stock rose to celestial heights — and then Robinhood severely restricted buying Thursday, making it much more difficult for average traders to engage. Robinhood said Monday that it loosened restrictions on GameStop stock buying somewhat and that it had raised $2.4 billion in fresh funding to help it expand its business.
But the damage against Robinhood’s reputation, which also included lawmakers and regulators piling on, had already been done.
Musk’s aggressive line of questioning nodded to the brash CEO’s own not-so-secret hatred for short-sellers. The traders once made Tesla the largest short in the domestic market, according to trading-data company S3 Partners, and attempted to cast widespread doubt over the electric-car company.
In shorting a company, investors typically borrow a stock, then sell it — and then buy it back after the price drops. After returning it, they pocket the difference in price. It is in their best interest to sow doubt about the company’s future. Short-sellers helped drive down Tesla’s stock price in 2019 to its lowest price in years.
But starting early last year, Tesla’s stock took off in an astonishing rise as the company posted better-than-expected quarterly profits and car deliveries, sending short-sellers scrambling and eventually causing them to lose billions. The rise also turned Musk into the richest man in the world, depending on the day.
It was not Musk’s first dip into the Robinhood debate. Last week, he tweeted support of the Reddit message board that urged on GameStop buying two days earlier, tweeting “Gamestonk!!” with a link to /r/wallstreetbets.
The tweet garnered more than 47,000 retweets. He continued to tweet apparent support of the GameStop revolt against hedge funds, including calling out discussion-board site Discord for going “corpo,” or corporate, when it suspended a GameStop trader forum for breaking its content rules.
On Thursday, following the restrictions, he tweeted to his nearly 45 million followers: “this is bs - shorting is a scam.” Musk, somewhat of a folk hero on Twitter for voicing his unfiltered thoughts, was immediately heralded by many for supporting the small investors. “The king has spoken,” one person tweeted in reply.
During the appearance on Clubhouse, late Sunday on the West Coast, Musk asked Tenev what prompted him to halt trades on GameStop and other heavily shorted stocks last week.
Were more powerful entities, such as regulators, depriving smaller retail investors of a potential payday at the expense of shadowy hedge funds? Was Robinhood partner Citadel Securities responsible for the trading halt?
“Is anyone holding you hostage right now?” Musk asked.
Robinhood operates a trading app that pretty much anyone can use, and it was once pitched as a way to democratize the stock market by allowing small and individual investors to join in on trading. That image was mocked online when it restricted GameStop trading.
The spontaneous public grilling by Musk came hours before Robinhood was scheduled to resume limited trading Monday after the unprecedented volatility of last week turned the trading app on its head.
Tenev explained that Robinhood had received an unusual request around 3:30 a.m. Pacific time Thursday for a $3 billion deposit from the company’s clearing agency, which works to fulfill transactions.
That was a problem, Tenev said, because until that point Robinhood had raised only $2 billion. The amount of interest in the “meme stocks” Tenev referred to had far exceeded what Robinhood could reasonably cover. Tenev said $3 billion was “an order of magnitude over” the typical request amount.
But Musk followed up with another question on how Robinhood shocked investors by abruptly restricting purchases of GameStop, AMC Entertainment, BlackBerry and certain other volatile stocks: “Did you sell your clients down the river or did you have no choice?”
“If you had no choice, that’s understandable, but then we’ve got to find out why you have no choice,” Musk said. “And who are these people that are saying you have no choice?”
In response, Tenev suggested more transparency was needed in the formulas used by financial institutions to calculate these requirements. He emphasized how Robinhood was able to raise more than $1 billion in capital in 24 hours to reopen on Monday. Tenev would not commit to imposing no restrictions on the stocks.
When Tesla stock soared despite short-sellers, Musk took to one of his favorite venues, Twitter, to mock them. Last summer, he announced that a new product would be sold on the Tesla website: short shorts — red, shiny, tiny shorts that read “S3XY” across the back.
“Only $69.420!” Musk tweeted with trademark sophomoric humor.
Tenev expressed regret on Clubhouse. “We knew this was a bad outcome for customers,” Tenev said. “People get really pissed off if they’re holding stock and they want to sell it and can’t.”
The wide-ranging 90-minute conversation that preceded the surprise Robinhood grilling was mostly vanilla for the outspoken Musk, but he did weigh in on the country’s struggles to administer coronavirus vaccines quickly enough to as many people as possible.
Musk, who promoted misinformation surrounding the virus for months and tested positive before donating $5 million for covid-19 research last month, said “there are too many requirements of who can get a vaccine.”
Hamza Shaban contributed to this report.