January 28. 2021: this is a day that many people will never forget, myself, being one of them, millions of other retail investors and previous customers to brokers. I will never forget this day, as it was a day of injustice, of negligence, of corruption and of bailout, and that's really the oldest honest way of putting it. Especially after reading the report, the bombshell that just got dropped today, which was the game, stopped report and i couldn't think of a better name myself.

That's a that's a clever as hell way of sort of summarizing this, because the game was stopped and it was consciously stopped and what i'd like to discuss today is robin hood. Now this is 180 page report. I have not made my entire way through it, but i have read through enough of the robin hood case to feel like. I can have a decent opinion on this and share it with you.

There will be a large scale, video that comes out, giving a summary of everything within the next uh couple of days, but this is 180 page document. I want to take my time getting through it as to give you the best uh uh summary possible, but it's gon na be a long video, but nonetheless, robin hood was the notorious villain back in january of 2021 because they were one of the first. If not the first broker to stop buying within meme stocks, this included amc, gamestop, nokia, bed, bath and beyond express lots of different names back in the day uh. They were one of the first guys to execute this, and the worst part is many.

People thought that it was sort of uh at the very least negligent and at the very worst uh purposeful, and unfortunately, we have the very worst case scenario here, as there's text messages going back and forth between executives and internals within the company proving so i like To go over this because it not only uh rationalizes and vindicates all the things that people have thought for a very long time, but goes beyond that. It shows you. This was a malicious negligence uh that they had a conscious decision to make and made that have the repercussions that it did so, let's get into it, i'm not a financial survivor. I'm not financial, please please, don't say the grain of salt, robin hood.

What happened with robin hood? Well if we go way back into into january right - i just mentioned this before, but on january 28th of 2021 many stocks lost the ability for people to buy them. This is obviously troublesome in a supply and demand situation. Uh, if you cut off buying, which is demand, supply is going to reign supreme and you can apply this to anything. So if you were to think about, for example, uh, let's just talk about bikes, let's say that you're trying to sell a bike for a hundred dollars.

You listed on facebook marketplace for a hundred dollars and nobody buys it at 100 bucks. What is the rational thing for you to think huh nobody's buying it 100 bucks, there's a nice market for bikes out there uh. It must be because my bike's too expensive, i'm gon na lower it 90 dollars. Right still, nobody buys it.

I guess i got ta lower it again: 80. 70. 60, when you have no demand supply is going to control price discovery, and this is exactly what happened back in january of 2021, with many of the meme stocks, you look at game, stop and many people hypothesized that uh gamestop would have gone significantly higher and i Think that is absolutely true. I think many people would say that about a lot of stocks back then, but gamestop specifically went from 500 down to about 40 in the matter of a couple of weeks because of the killing of momentum and the lack of liquidity.

That brokers were able to provide to their clearing houses right. That being said, this is one example. Amc is another example. We come back to january.

You can see 20. All the way down to five you come to express. Very similar situation went from thirteen dollars. All the way down to two uh, you look at nokia nokia, another example went from nine dollars and seventy six cents down to three and a half blackberry went from 28 all the way down.

To seven i mean this is a picture-perfect example of what happens when you cut off demand for a stock supply will reign supreme. Well, this is problematic when you realize that this was a conscious decision by brokers which is contradictory to what happened in the congressional hearing. May i add so after this happens january 28th, the congressional hearing takes place and there was a whole bunch of big names that gathered into one spot uh. This included robin hood ceo, vlad tenef.

This included ken griffin, who is the ceo of citadel a market maker who uh has a very strong relationship. May i add to robin hood: it also included uh, roaring kitty, aka, deep value, lots of different congressional representatives and guest appearances to approach a question, and the question was: was this preventable? Did you guys make a conscious criminal decision to over your customers and the simple answer at the time was no, they said. Let me make this painfully clear. We had absolutely nothing to do with this problem.

There's a black swan event. It was nev, it will never happen again. 100 billion, not the case. Let's just go over it right.

Findings from this uh report, the game stopped report, robin hood, roberto exhibited troubling business practices, inadequate risk management and a culture that prioritized growth above stability during the meme stock market event. Now the most interesting piece here is this growth above stability during the meme stock market event, and what this means and we'll get into this as we read the text messages and the emails, is these guys made a conscious decision to over their customers? Rather than do the right thing, they've decided to focus on growth over doing their customers right, and it was avoidable to some extent they saw it coming. They could have gave a warning, but failed to do so. So what you see here is that the the meme event happened and uh sort of the underlying theme was there was liquidity issues, collateral issues they couldn't do anything to avoid it right, and here we're going to read this uh part b prior to the meme stock Market event, robin hood did not update its stress test used to predict collateral obligations to clearing agencies after finra made an observation robin hood securities chief financial officer.

Why is this important? This is indicating that that finra in the past has told robin hood. You guys need to update your liquidity process, your liquidity management and your stress test, because we can already see this is back in 2019 that you guys have some problems with the way that the show is running. Uh hood trash previously was strongly suggested to do this by finra and their response. Uh was the exact opposite.

They cooked the books, but the problem here is that robinhood was incentivized. To do so see robin was not the only villain robin hood, the nscc, the dtcc finra market makers. A lot of other brokers were all villains in this and demonstrated the fragility of the market. But the really big problem here is that the nscc does not crack down on this uh behavior.

In fact they sort of enforce it. They enforce this behavior because they have so many uh, not even wrist slaps but encouragements to bend the rules. What i mean by that is, the nscc has something pretty interesting that it likes to uh keep track of, and these are notes for the entirety of the video. I'm not going to go over everything here.

But let me go over at least a couple of these uh. The nscc's got something that that's called the excess capital premium charge, and what this is you know supposed to do is uh in the most simple context possible, show brokers that hey you got to put up money for when there's high volatility and there's a high amount Of money, that's being transacted well, one thing that the nscc has done essentially is waive fees, and what you're going to find here is the higher the aggregate excess capital premium charges were assessed, the more likely the nscc was to waive them in essence. What would this do? This would incentivize you to not give a single about actually taking care of uh charges or premium charges that were supposed to happen? Why is this problematic? Because when the nscc will actually need them, such as situations back in january 28th, uh, they will not have the funds, they won't put them up, because they're gon na be so used to bending the rules not doing things the way they are supposed to uh. And here you got this: this comes back to their response, which i mentioned before, which was cooking the books, robin hood conducted a quarterly stress test exercise in mid-january of 2021 prior to the mean stock market event, using its collateral charges from the prior quarter end rather Than the peak collateral charges, as finra's staff had suggested, what does cooking the books mean? I really highly suggest anybody.

That's out here: uh watches the ozarks or ozark, because it's a it's a phenomenal show that really describes this to to a very high degree. What these guys decided to do was nitpick data. They chose what they wanted to show finra staff. They chose what they wanted to monitor so that they could essentially get away with continuing what their main mission was, which was growth above stability during the meme stock event.

The problem here well robin hood, negligently didn't keep their books, which led to uh vlad tenef going to this congressional hearing and claiming that it was a black swan event when in reality. Well, there was a lot of things that hinted towards this happening uh, and this is discussed in great detail as we're about to go through these texts, but rob notes model is used for calculating his clearing house obligation. The days before the meme stock market event were incomplete, uh and therefore grossly underestimated. How much the company would own collateral obligations on january 20th, 2021.

moral of the story. Uh they were negligent. They didn't even try to keep their books. They made a decision, a conscious decision, they essentially said well, this is getting.

Let's just see what happens, i guess huh, and now we get into the crazy, as i mentioned before, the nscc sort of just lets slide the result of all of this. All this happening was that robin hood was faced with a choice. They got right, they weren't ready for liquidity obligations. Uh the nscc had trained their dogs to to basically just say.

Ah, we don't got to worry about that. Our big boys up top got us baby. So they got with a 3.7 billion collateral charge on january 28 to 2021.. They had a choice huh.

What do we do? Do we focus on growth or do we focus on stability and they decided knowing this would happen four days in advance that they would then the customers with no loop, and this gets us into the texts. Now i've tried to put these in chronological order so that we can make this the most processable possible, but check this out. We're just going to read through this and i've sort of got some little cliff notes along the way uh to document the story and then we'll give you some closing words uh and i'll. Give you the full video in coming days.

So this is on january 24th. Uh blank saw your post if you think we should run front run the model. I think that's jim's call from a negative press standpoint, which is mainly what i'm focused on and regulators. Rhf is good with the current requirements.

I think triggers that can make us react to be inbound from any regulators, and this to me is the beginning of onset and worry right. This is concerning because they recognize that there's a problem and they're trying to decide what the best course of action or coa is to deal with that problem. And then you go into the next day, which is the actual recognition of a problem. See here is sort of just the eyebrow raise and here is sort of both eyebrows raised.

You know you go from you go from this to this. It's not good january 25th. Next day, fyi, we have also been asked to discuss at all hands anything where we can talk about handling scale faced with rolling eyes uh, but might be a great time to highlight all the things. A cats and treasury have been doing to keep the lights on.

This indicates the robin hood was facing some money problems. I was going to discuss tomorrow and rhs management. Keep me posted comes on to this recognition of unsustainability, guys ton of issues, and this is by the way, after this about seven minutes later guys. Ton of issues today with the lag we were looking at a cats will probably not be able to process at all.

Before batch, we were hoping to start today's work at eight p.m. We missed the ach file, which is a wire transfer being fully trained. Uh submitted lopr, occ and others are going to be cutting it very close to cutoff. We cannot sustain any increases in volume if it is going to create longer delays and processing every day.

At this point, it's three days prior to the event robinhood executives, robin hood, internals, jim start, whoever the start, we're gon na call them uh. They knew there was a problem. They knew there was unsustainability at hand here. If volume continued to increase, they would not be able to keep up with processing, and this is a translation directly to liquidity issues.

Now, how do you solve this problem right? Well, maybe you have money on your books. Maybe you do a better job of keeping liquidity. Maybe you alert your customers that you're running into these problems three days prior, if you knew it was happening three days prior, because here there's no solution being talked about. It's just stating a problem and not stating a solution to the problem right.

They don't even try to look for it, which brings us into the next series of texts. January 25th, later on in the day about eight minutes later recognition of helplessness, we don't handle scale well, sweat smile. That is probably the biggest understatement of the day. Next piece helplessness continue dealing with occ file delay right now.

This is going to cause liquidity issues thanks january 25th. They knew it three days before black swan, my butt there's no chance, maybe maybe maybe a goddamn chicken all right black swan super rare chickens, very common. It's common for people to recognize a mistake or a problem that could happen three days in the future. The black swan was their decision to ignore the problem all right.

This brings us into this rationalization acceptance. This is the next day. The requirement would be something in the 1.6 to 1.9 billion range. That was at the time it went all the way up to 2.3 billion.

If i remember correctly, since we have never been in that situation, the occ knows that we only allow spreads. There could be something that could be done, but you can be confident that there will be a full regulatory investigation at this point. They know they're gon na get uh. They know that they're gon na end up in front of some big boys and really get their uh their rocked right.

The biggest concern now is: can we handle our scale? Obviously the answer is no. If we fail to deliver something like this due to us not being able to handle our own volume, it would not bode well with occ or the regulators. Apparently they didn't care that much because you guys are still in business uh, albeit if it's not for long i'd. Imagine you guys are going to go bankrupt at this rate, especially if payment for order flow gets banned.

But nonetheless you can see how this is going. Growth versus customer care - this is probably the scariest piece of this. We could probably interact with this movement to promote robin hood growth, but thinking we should stay far far away from this entirely. Oh blank mentioned that gamestop was one of the stocks we gave out to referrals users.

We should remind the users who have this lying around, that this is a 200 stock. Now hmm, my thinking was that we don't want to call out gamestop at all. I'm trying to imagine the right way to tell customers that we gave them a meme stock before it was a meme. Essentially, what these guys are talking about here is well, we kind of know that stuff's bad.

So how can we find a way to keep our customers here and keep growth running uh without sacrificing them? Even if we're gon na have to essentially default on everything, if we can't handle transaction volume uh - and that brings us into this vladteniv january 27th - just make sure our liquidity stays green and we'll be fine, said vlad jason on it. Very obviously, uh was not on it. R.I.P poor, jason, dude uh, which brings us into this as pco, will trigger a crash. I am certain it's a bad look we're supposed to support the retail.

This was uh. This made me think of a quote. I've watched, seven deadly sins, uh all the way through probably twice and there's a quote in here what others think of you versus what you think of others. Smelly yoda said this in the seven deadly sins, which is an anime.

I know i know i know. I know uh it's it's it's pretty ooh to to bring that up, but nonetheless this is a great example of this. So what what what this guy's focused on is we're supposed to support the retail it's a bad look is how they're going to be perceived by retail instead of what they think of retail they're focused on what retail thinks of them versus what they think of retail And what i mean by that is uh what you are thinking about regarding others, what you are trying to do regarding others is going to have a drastically bigger impact on what others think of you than focusing on what others think of you. They had everything wrong.

They were focused on how they look and not the good they can do for others, and that's obviously problematic. It shows you what their mindset was, which brings us into the real bombshells uh, which is hood facing repercussions and how it was that they knew this was going to happen straight from the top. Apparently, we don't have enough money to pay ncc fees. These are what we mentioned earlier.

This is why i wanted to give that preface uh. They had not had to pay these in the past and since they didn't well, they weren't ready for it always great. When people start dropping f-bombs, you guys probably deserved it who knew about nfcc fees, nscc fees, they charge risk fees. Interesting.

It's like we're living march, 2020, 10, 000 march 2020. Is what sparked a lot of problems for robina? They faced technological outages, so to speak, in which you saw the platform and many people who are using it get over by the fact that they uh their platform is shut down. They face fees, they actually have the record for the biggest fine, that's been given to a broker ever, but with bigger volumes. It's funny, though, because public perception is fine like no one knows there are issues january 27, 2021 about 12 hours prior to the problem that took place.

They knew none of this playing dumb crap. None of this uh. It wasn't our fault crap. They made a conscious decision to screw over their customers and to screw people out of a lot of money to bail themselves out and before the collapse.

This was their final thoughts conflict brewing. We have to keep the growth flywheel running. Weeble is right on our tail. Don't worry, we need to survive first, at least this guy's speaking some common sense.

I know i'm firmly in the growth camps at head of data science and guess who the strained citadel robin hood's disproportionately high order flowing unique formula for calculating p5 rebates strained. Several market makers and introduced risk to the stock market and citadel being the biggest and largest market maker within all of uh retail orders, obviously was on its knees to robin hood, who made poor decisions and conscious decisions to screw their customers. Now i wanted to talk about all this because a year and a half later people call you as dumb. They call you stupid, they say it's all a myth, they say it's all a lie.

They say that's what you get you dumb peon for for thinking. You stand a chance for thinking. You were right. You were wrong all along, that's not the case all right.

This was criminal. This is deserving of a class-action lawsuit. This should put robinhood out of business. Robin hood should not be a broker, they should be in jail, and here we are nonetheless, these guys still handle your transactions and they've been able to play it off as though nothing happened, it's absolute lunacy now.

The question at hand is: do these guys deserve a second chance? I would argue there are some things that do not deserve second chances, and this is probably one of those things it's absolutely nuts uh. I think i underestimated how long it's gon na take me, but nonetheless, that is the video. That's what i want to discuss today and hopefully uh that you pull some value. It's crazy, the the market's sad it's a dark place and all we can do is try and uh work towards working through all these problems as they exist uh and make change man.

That's really it. I'm gon na spend a lot more time. Reading over this and trying to uh come up with a home page for the entirety of what happened back then, but until then this is what i got i'll catch you all later. I appreciate you as always: much lovely taps peace.