By Pete Schroeder, Svea Herbst-Bayliss and John McCrank

WASHINGTON/BOSTON/NEW YORK (Reuters) – Tension, irate questions, people talking over one another, and a cat photo. Thursday’s five-plus hour U.S. congressional hearing on GameStop had all of that, as top hedge fund managers, the head of Robinhood, and Roaring Kitty himself answered a barrage of questions over who was at fault in January’s trading frenzy.

GameStop rose more than 1,000% during two weeks as retail traders using the Reddit platform encouraged each other to pile in, socking it to hedge fund managers who were short the stock – a bet GameStop would fall.

The trade deflated, however, after online brokerage Robinhood and several other brokers controversially restricted buying GameStop’s shares – leaving retail investors frustrated but capping the losses for the hedge funds.

“Robinhood owns what happened and we need to make sure it doesn’t happen again,” said Robinhood CEO Vlad  Tenev, who appeared to field the most questions at the U.S. House of Representatives Committee on Financial Services hearing.

Keith Gill, a Reddit user and YouTube streamer known as Roaring Kitty who had boosted the stock with his videos about how undervalued the company was, provided a more lighthearted exterior.

Gill sat in a red videogaming chair from which he recorded many videos promoting his investment in GameStop. Displayed behind him was a poster of a kitten with the caption “Hang in there!” Many investors who bought GameStop as the price skyrocketed now face deep losses.

Speaking as much to his social media followers as to the lawmakers, Gill said, “I like the stock”, a phrase that has become a rallying call on Reddit, where commenters watching the hearing cheered him on, some calling him their “savior” and a “hero.”

Hedge fund managers Gabe Plotkin, whose Melvin Capital lost 53% in January in the GameStop frenzy and Ken Griffin, who built both Citadel LLC and market making business Citadel Securities, also spoke.

The hearing was led by Representative Maxine Waters, chair of the Democratic-led panel, who is a critic of Wall Street and in January called hedge funds “unethical.”

Some lawmakers questioning the witnesses at times cut them off in frustration at not getting quick, clear answers. At the end, Waters promised to hold more hearings, with testimony from regulators at the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

She said she was “more concerned than ever” that retail investors were being taken advantage of, and that large market makers such as Citadel Securities could pose a threat to the financial system.

Republicans on the panel also sought to burnish their consumer-protection credentials, making for a fiery virtual hearing featuring echoes, feedback and background noise.

UNDER PRESSURE

One main question was whether Robinhood had been pressured by hedge funds holding losing positions – they had an interest in making the short squeeze of GameStop end. But Tenev and Griffin denied that.

“We don’t answer to hedge funds,” said Tenev. “We serve millions of small investors who use our platform.”

Citadel CEO Griffin said the same. “Absolutely not,” he replied, when asked whether Citadel had contacted Robinhood about restricting trading.

Tenev found himself repeatedly in the hotseat, explaining how Robinhood makes money and how its clients fare while trading on its platform. Representative Sean Casten, a Democrat, played an automated message on the Robinhood customer service phone line while questioning Tenev about how customers are treated.

Griffin, a Republican donor, was meanwhile castigated by another Democrat, Representative Brad Sherman, for evading his question about whether market-makers provide the same prices to all brokers.

Griffin maintained that Citadel Securities, which executes roughly 47% of all U.S.-listed retail volume, had worked for years to help give consumers “a better price.”

SHORT SELLING

Some of the repercussions of the GameStop saga could be in the business of short selling itself. Melvin Capital’s Plotkin, who first bet against the future of GameStop in 2014 when it traded around $40, is wary about holding big short positions again.

Melvin suffered massive losses as the stock soared leading up to Jan. 28. Citadel made a $2 billion investment in Melvin on Jan. 25.

“I don’t think investors like ourselves want to be susceptible to these types of dynamics,” Plotkin said. “Whatever regulation you guys come up with we’ll abide by.”

Reddit CEO Steve Huffman also appeared, but was grilled less than the Wall Street players. Huffman and Reddit user Gill were asked about the role of social media platforms in potential market manipulation.

“We spend a lot of time at Reddit ensuring the authenticity of our platform … And in this specific case, we did not see any signs of manipulation,” Huffman told lawmakers.

(GRAPHIC: GameStop’s rise and fall – https://graphics.reuters.com/USA-STOCKS/GAMESTOP/xlbpgdbajvq/chart.png)

(GRAPHIC: GameStop comments soared on Reddit’s Wallstreetbets – https://graphics.reuters.com/USA-STOCKS/GAMESTOP-COMMENTS/xegvbwadqpq/chart.png)

(Reporting by Pete Schroeder Svea Herbst-Bayliss and John McCrank; additional reporting by Noel Randewich, Elizabeth Culliford and Michelle Price; Writing by Megan Davies and Michelle Price; Editing by Dan Grebler, David Gregorio and Grant McCool)

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