SAN FRANCISCO – Vlad Tenev, the executive director of online broker Robinhood, has practiced damage control.
In March of last year, he told customers “we owe it to you to do better” after Robinhood’s app went down for a long time and many people were unable to act.
In June he wrote in a blog post that he was “personally devastated” and wanted to improve the “customer experience” after a 20-year-old with a negative $ 730,000 balance in the app killed himself.
And in December, when federal regulators fined his company $ 65 million for misleading users for making money, he said the allegations “don’t reflect Robinhood today.”
33-year-old Tenev is now back in the hot seat after Robinhood abruptly curtailed its clients’ trading last week as stocks like GameStop were boosted by an army of online investors. The boundaries enraged Robinhood users who were banned from the action, and the seven-year-old startup was blown up by lawmakers and others accused of acting unfairly to ordinary investors.
For days, Robinhood was slow to explain why it had stopped people from trading stocks. It was only later that Mr. Tenev announced that Robinhood had put restrictions in place because it did not have enough cash reserves to protect itself against the risky deals. To add to that cushion and avoid further problems, Robinhood raised a $ 1 billion emergency last week, followed by another $ 2.4 billion this week.
On Sunday, Mr. Tenev Elon Musk said in an impromptu interview on the online conversational app Clubhouse that he knew that Robinhood’s trade restrictions were “a bad outcome for customers.” He said the entire experience was challenging, “but we had no choice in this case.”
It was no surprise Robinhood was caught unexpectedly last week, current and former Robinhood employees and analysts said. While Mr. Tenev has helped revolutionize online trading for a younger generation with an app that makes investing easy and fun, his start-up has been repeatedly ill-prepared to solve problems that are as commonplace as technology problems and trade problems.
Many start-ups are suffering from increasing pain. “There is a consistent pattern, however, that begs a question of whether he knows what is going on in his business,” Vijay Raghavan, Forrester Research analyst who works with Robinhood and other brokers, said of Tenev.
Legislators and some Robinhood users treated the CEO even harsher. New York Democrat Representative Alexandria Ocasio-Cortez and Republican Senator Ted Cruz have beaten Robinhood for freezing users’ ability to purchase GameStop stock. Mr. Tenev has agreed to testify in Congress on February 18 on the subject.
GameStop versus Wall Street
Let us understand you
- Stocks of GameStop, the video game retailer, have risen because amateur investors starting at Reddit have bet heavily on the company’s stock.
- The wave gained momentum when large hedge funds short-sold GameStop stock – essentially betting against the company’s success.
- Sudden demand pushed the stock price from less than $ 20 in December to around $ 300 on Monday. At least on paper.
- It’s not just GameStop. Amateur investors have supported other companies that many big investors have shunned, such as AMC and BlackBerry.
- This bubble around GameStop forced large investors to raise funds to cover their losses or to shed shares in other companies.
Even some of Robinhood’s biggest promoters have turned against Mr. Tenev. Dave Portnoy, founder of Barstool Sports and a well-known Robinhood supporter, wrote on Twitter about a picture of Mr. Tenev last week: “Fraud, liars, bastards.”
Robinhood, a privately held company in Menlo Park, California, declined to make Mr. Tenev available for an interview. But Jason Warnick, the chief financial officer, said Mr. Tenev has widespread support internally.
“When I saw Vlad there was absolutely no one I wanted to be with,” said Warnick of the events of the past week. “He mobilized us in an incredibly effective way.”
Venture capitalists who have backed Robinhood, which is valued at nearly $ 12 billion and is expected to go public this year, also said they had confidence in Mr Tenev. Rahul Mehta, partner at venture firm DST Global, said the speed with which Mr. Tenev raised the $ 3.4 billion emergency over the past few days shows you the support at the table and the conviction that people have for Vlad in particular. ”
Mr. Tenev, who moved to the United States from Bulgaria at the age of 5 and grew up in the Washington DC area, founded Robinhood in 2013 with Baiju Bhatt. The two met while studying mathematics at Stanford University.
After graduating from Stanford in 2008, Mr. Tenev attended the University of California at Los Angeles for a PhD. in math but dropped out to work with Mr. Bhatt. The couple initially had two other business ventures including a Wall Street trading firm.
But they were short-lived. Instead, inspired by the 2011 Occupy Wall Street movement that targeted the power of the big banks, they talked about how to “democratize” finances for everyone by ending the fees most brokers place on the Trade in stocks levy. They named Robinhood after the legendary English outlaw who stole from the rich and gave to the poor.
In particular, Mr. Tenev and Mr. Bhatt wanted an app that a younger generation could easily use. “People in my age group, the millennials, didn’t get into the markets and were openly suspicious of the institutions that provide financial services,” Tenev said in 2015 on CNBC.
Mr. Tenev and Mr. Bhatt, who were co-directors, made Robinhood easy. Users couldn’t start trading stocks with anything but an iPhone app. With the app, trading felt like a game too. New customers got a free share of shares after scraping off a digital version of a lottery ticket.
The men were looking for prominent investors such as actor Jared Leto and rapper Snoop Dogg. The co-CEOs often showed up in the office with matching Tesla sport utility vehicles, one black and one white, said two former employees.
Within Robinhood, Mr. Tenev was known as the brain coder in charge of operations, said six current and former employees who spoke on condition of anonymity. He was known for having lunch with coworkers to discuss books or his latest science fiction theories. Mr Bhatt was more fun-loving and handled design, they said.
Both were active on social media, and Mr. Tenev tweeted emoji-filled, humorous replies to Mr. Musk. Mr. Bhatt posted pictures of himself sitting on the floor at Golden State Warriors basketball games.
However, as Robinhood grew rapidly, so did the mistakes. In 2018 the company announced that it would offer bank accounts. But it hadn’t received approval from financial regulators, which is standard practice, which earned the start-up a quick reprimand.
That same week, Robinhood released software that mistakenly reversed the direction of customer trading, meaning that a bet on a rising stock was converted into a bet that it would fall. Mr. Tenev oversaw the technology.
The technological problems continued to mount. In 2019, customers found that Robinhood’s software inadvertently allowed them to borrow nearly infinite amounts to multiply their stock bets. Last March, when the pandemic hit the US and the stock market toppled wildly, Robinhood’s app ran for almost two days, causing some customers to lose more than $ 1 million.
At the time, Mr. Tenev said in a blog post, “We owe it to you to do better.” By then, Robinhood had more than 13 million customers.
Mr. Warnick and other staff said Mr. Tenev had a knack for staying calm in difficult situations. “He doesn’t get emotional,” said Mr. Warnick.
However, five current and former Robinhood employees said Mr. Tenev moved quickly to new projects without addressing the previous issues. Following the outages in March, Tenev announced that it would significantly improve its infrastructure and customer support. But almost a year later, the start-up, unlike its competitors, does not offer a telephone number for customer service.
Robinhood did not respond to a request for comment regarding the customer service issues.
Last year, after returning from paternity leave, Mr. Bhatt resigned as co-managing director, leaving Mr. Tenev in charge. Mr. Bhatt will remain an executive and serve on the company’s board of directors.
Robinhood’s technical failures continued. In the past month, the website went off 19 times, according to the web tracking company DownDetector, more than twice as often as Charles Schwab or Fidelity.
Mr. Tenev has recently held back. He said in a podcast interview last year that he keeps his phone out of his bedroom at night so as not to be tempted to check social media.
But last week, as the GameStop stock mania grew and Robinhood was forced to react, Mr. Tenev had no choice but to step out more. He has appeared on television at least eight times from the sparsely decorated living room of the house where he lives with his wife and children.
In most of the appearances, Mr. Tenev used technical jargon and quickly switched to talking about Robinhood’s progress in another phase of expansion.
“This is just a standard part of brokerage industry practice,” he told Yahoo Finance last Friday, referring to the decision to temporarily stop some purchases. “We are very confident about our future.”
Kitty Bennett contributed to the research.