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Updated August 14, 2024You’re reading an excerpt of Great Founders Write, by Ben Putano, writer, entrepreneur, and book publisher. He’s the founder of Damn Gravity Media, a publishing house that inspires and educates tomorrow’s great founders. Purchase now for lifetime access to the book and on-demand video course.
Tenev’s first mistake was simply not showing up when people needed him. The ten hours it took for him to address Robinhood’s decision to freeze $GME trading is inexcusable. In that time, wild conspiracy theories raged all over the internet.
An internet sleuth discovered that one of Robinhood’s largest investors, D1 Capital, held a large short position against Gamestop. The fund had lost 20% of its value in a matter of weeks. Was this why Robinhood delisted Gamestop?
Later, an even more damning fact surfaced: Robinhood’s largest enterprise customer, Citadel Securities, had recently invested in a hedge fund who was on the verge of bankruptcy from the Gamestop short squeeze. Just a coincidence? Or was Robinhood forced to take action by a powerful institution?
The truth was much more boring. Robinhood faced a compliance issue that threatened to shut down the entire platform. While trading on Robinhood appears instant, transactions take up to two days to officially process. A rule called T-2 requires Robinhood to keep cash on hand to cover those trades until they’re completed. The Gamestop frenzy pushed Robinhood’s cash requirements to a hundred times their normal levels. On January 28, they had just five hours to either come up with the cash or get shut down by the government. By freezing $GME and other rallying stocks, they were able to lower their cash requirements and keep the platform afloat.
But no one knew this until Tenev posted a Twitter thread about it—ten hours after the freeze occurred. Instead of being up front with customers, Tenev disappeared, which is suspicious in itself. The void of information was filled by a public desperate for answers.
The first rule of communication during a crisis: Be visible. Vlad Tenev was not.
During moments of crisis, be direct. Skip the formalities and business-speak. Give people the information they need.
Vlad Tenev should have been on the front lines communicating with customers during the Gamestop crisis. Instead, he directed his comms team to release an anemic blog post titled, “Keeping Customers Informed Through Market Volatility.”
The first problem with the article is the title. It’s as generic and bureaucratic as you can get. Using the phrase “market volatility” on the day of the largest short squeeze in history isn’t just an understatement—it’s misleading. Customers seeking answers on Robinhood’s blog overlooked the post because it didn’t directly address Gamestop.