The chief executive of the Robinhood app has defended the decision to halt trading in GameStop shares at a congressional hearing on Thursday, calling allegations that the company acted to help hedge funds that were hemorrhaging money “absolutely false”. The comments triggered accusations the company was creating a “smokescreen” to deflect blame. Vlad Tenev and other players in January’s GameStop saga was appearing before the House financial services committee in the first public hearing in a wide-ranging investigation into trading in GameStop, AMC and other companies whose share values soared as small investors piled into the stocks. “The buying surge that occurred during the last week of January in stocks like GameStop was unprecedented, and it highlighted a number of issues that are worthy of deep analysis and discussion,” Tenev said. Shares in the Texas computer game retailer surged 1,600% in January as small investors worldwide – many coalescing on the Reddit forum WallStreetBets – piled into the troubled retailer’s shares betting against Wall Street hedge funds that had bet the share price would collapse – a practice known as short-selling. At one point, short-sellers had borrowed far more of GameStop’s shares (140%) to sell short than were available on the market. Tenev once again apologized for the trading ban. “Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us,” Tenev said. The sometimes fractious hearing was largely divided along party lines, with Democrats calling for more oversight and Republicans arguing against more regulation. “Don’t you see something has gone terribly wrong here?” said the Democratic congressman David Scott. He called social media-led stock market bubbles “a threat to the future of our financial system”. Republican Bill Huizenga called the hearing “political theater”. According to Tenev, Robinhood and other brokers had no choice but to suspend trading in GameStop and other hot investments during this period of “historic volatility”. Robinhood is required to place a deposit using its own funds at a clearinghouse to cover risks until trades are settled between a buyer and seller. On 28 January, the company was informed by its clearing house, NSCC, that it had a deposit deficit of approximately $3bn – up from $124m just days before. With trading in hot stocks suspended, Robinhood moved to raise $3.4bn from investors and trading was resumed. But the suspension triggered a firestorm of criticism among small investors and in Washington, with Republicans and Democrats attacking Robinhood and accusing it of backing the losing hedge funds over small investors. Christopher Iacovella, the chief executive of the brokerage-industry group American Securities Association, dismissed Tenev’s explanation and said the system had worked as it should to defend the US’s financial system. “As the GME [GameStop] short squeeze unfolded, the clearinghouse recognized that an inadequately capitalized broker-dealer could pose a risk to our markets,” Iacovella said in a letter to the House committee. “Attempts to blame the clearinghouse or the timing of the settlement cycle for what happened during the short squeeze are a smokescreen.” Thursday’s hearing, titled Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide, is the first of a series and addressed a number of issues including the “gamification” of investing, the role of social media and potential conflicts of interest. Tenev was also asked about the suicide of Alex Kearns, a 20-year-old trader who mistakenly believed he had lost $730,000 on a trade. Tenev called the death “deeply troubling” and said Robinhood had taken “very aggressive steps to make our products safer for our customers”. Later in the hearing, Representative Sean Casten of Illinois called Robinhood’s hotline and played its automated message. “This was a man who was 20 years old. He was not allowed to buy a beer but he was allowed to take on $730,000 in debt,” said Casten. The representatives questioned the role of Citadel, an investment firm that executes Robinhood clients’ trades and also invested in Melvin Capital Management after the hedge fund’s bets against GameStop collapsed. Both Citadel’s founder, Ken Griffin, and Melvin’s founder, Gabe Plotkin, testified at the hearing. In his testimony, Plotkin denied that Citadel “bailed out” Melvin. Plotkin said January’s frenzied trading in GameStop was “untethered to fundamentals” and quoted racist messages aimed at him and others, including antisemitic statements such as “it’s very clear we need a second Holocaust, the Jews can’t keep getting away with this.” GameStop’s share price has now collapsed from a high of $483 on 28 January to just over $44. But one of the small investors who helped drive the stock to dizzy heights is still a believer. In his testimony Keith Gill, a trader variously known online as Roaring Kitty and DeepFuckingValue, said his investments had made him a millionaire. “GameStop’s stock price may have gotten a bit ahead of itself last month, but I’m as bullish as I’ve ever been on a potential turnaround. In short, I like the stock,” he said.