The Uncontained Spark

President Snow: Seneca… why do you think we have a winner?

Seneca Crane: [frowns] What do you mean?

President Snow: I mean, why do we have a winner? I mean, if we just wanted to intimidate the districts, why not round up twenty-four of them at random and execute them all at once? Be a lot faster.

[Seneca just stares, confused]

President Snow: Hope.

Seneca Crane: Hope?

President Snow: Hope. It is the only thing stronger than fear. A little hope is effective. A lot of hope is dangerous. A spark is fine, as long as it’s contained.

Seneca Crane: So…?

President Snow: So, CONTAIN it.

And may the odds be ever in your favor!

There is an uncontained spark in the financial world today.

It’s a spark that emerged from the unlikeliest of places, a federal courthouse in Florida.

It’s a spark that has the potential to light a fire under one of the most prominent financial institutions in the world – Robinhood – and one of the most powerful financial institutions in the world – Citadel.

It’s a spark that might well sputter out, but for the first time in a long time I have hope for a searing change in the obscenity that is our oligarchic status quo. And not just a little hope, but a giant arc welder’s spark of hope that can become a bonfire of hope.


The spark is found here, in the court filings for a class action suit against Robinhood and Citadel and a gaggle of other, smaller financial firms.

Specifically, the spark is found here, within the two primary plaintiff’s complaints laying out their civil case against Robinhood, Citadel, et al.

The first complaint, no. 409 in the list of documents in this docket, is focused on Robinhood.

The second complaint, no. 416 in the doc list, is focused on Citadel and the other market makers.

The spark is not found in the financial or markets analysis within these complaints. In fact, if you have a lot of experience in markets and you’re familiar with the Gell-Mann Amnesia effect, you’ll read one of the plaintiff’s not-exactly-right descriptions about how, for example, market-making or payment-for-order-flow works, and you’ll find yourself wondering if the legal arguments are similarly not-exactly-right.

To be clear, I have zero opinion on the merits of this case. Zero! I honestly do not know if this is a good case or a weak case from a legal perspective, and frankly I have misgivings about some of the conspiracy-based claims and accusations made here by the plaintiffs … not because I think the defendants are good guys (LOL), but because I think there’s a lot of random spaghetti thrown at the wall here by the plaintiffs in hopes that some of it will stick.

The spark is a set of internal chat conversations that someone inside Robinhood leaked to the plaintiffs and have been incorporated into these filings.

The public does not have access to all of these leaked internal conversations. All we can see is what the plaintiffs’ lawyers chose to put into these complaints (and as we’ll discuss later, we’re lucky to have this). Point being, I have no idea if there are other internal communications that take the sting out of these chat logs that are visible to us. I have no idea if these visible internal communications have somehow been taken out of context. Are these leaked internal communications enough to win this case for the plaintiffs? Once more with feeling … I don’t know and I don’t care!

But are these leaked internal communications enough to give the lie to much of the public posturing and narrative creation efforts made by Robinhood’s CEO Vlad Tenev and Citadel’s CEO Ken Griffin?

Yes, I think they are.

The Robinhood internal communications found in these court filings are a spark with the potential to change common knowledge – what everyone knows that everyone knows – about Robinhood and Citadel.

And THAT is the fire that burns well and true.

Here’s the first of the internal communications with the spark potential, IMO, to start a bonfire within this not-so-little corner of the speculation layer, taken from the Robinhood-focused complaint (doc 409).

Doc 409, (p7)

The specifics of this chat message (what is a PCO? what does it mean to move GME to 100%?) are really not important for the spark and potential bonfire that I’m interested in. They’re important for the plaintiffs in this case (PCO = position closing order, GME to 100% = increase in margin requirement), but not for me.

What’s important to me is that Jim Swartwout – THE major decision-maker for Robinhood’s broker-dealer, someone who is privy to every piece of material non-public information (lower-case for sure, courts can decide if it’s upper-case MNPI) in the Robinhood casino, someone who is a FINRA-licensed registered rep – apparently day-trades meme stocks in his personal account, front-running Robinhood clients.

What’s important to me is that Jim Swartwout is apparently tipping off colleagues about that information in a conversation about personal account trades.

I say “apparently” because, like I say, maybe there are other internal communications that make this something other than raw, pure illegal front running. But it seems … errr … difficult to walk back or explain away a statement as black and white as “I sold my AMC today.”

And you know what’s really damning about all this? The sheer casualness of it all.

Hey guys, I sold my AMC today! And we’re gonna do some big market-shaking stuff in GME tomorrow, so you might wanna get your ducks in a row today, if you know what I mean!

Next you’ll be telling me that Federal Reserve presidents are day-trading mortgage REITS and rocking in and out of e-minis at $1 million+ per trade.

Mortgage REIT day-trader (and former Boston Fed president) Eric Rosengren
SPX futures day-trader (and former Dallas Fed president) Robert Kaplan

Next you’ll be telling me that what’s truly important in our market compliance regime is giving the IRS transactional visibility into bank accounts with $600 in them.

And people wonder why I am angry.

Here’s the second of the internal communications that has the potential, IMO, to start a cleansing bonfire. This is from document 416, focused on the relationship between Robinhood and Citadel.

Doc 416 (pp. 75-84)

The reason these internal Robinhood communications are a spark is that it is Citadel CEO Ken Griffin’s testimony under oath that “We [Citadel Securities] had no role in Robinhood’s decision to limit trading in GameStop or any other of the “meme” stocks.

This testimony has been “clarified” by Citadel lawyers and Griffin’s personal lawyers as follows: “Citadel Securities never requested, intimated, agreed or otherwise sought to limit or to restrict the trading of such securities” and “Citadel Securities did not communicate with Robinhood about restricting trading in certain stocks in January 2021.”

Pretty clear-cut, right?

LOL. Do I think that Ken Griffin “lied under oath”? No, I don’t. Do I think that Team Griffin is parsing and litigating every word of this in Clinton-esque fashion? Yes, I do. Here’s how I think this will go down:

While Mr. Griffin was well aware of ordinary course-of-business conversations that took place about temporarily halting payment-for-order-flow in volatile names like Gamestop and AMC, it is outrageous — outrageous! — to suggest that this would have anything to do with Robinhood’s subsequent trading restrictions on those same names.

Why, Mr. Griffin is shocked — shocked! — that anyone would even suggest a connection between these two coincidentally contemporaneous events and has been assured that the words “restricting trading” were never uttered by anyone at Citadel Securities.

Ken Griffin did NOT have a phone call with that man, Mr. Tenev.

Not Ken Griffin

Did Citadel do anything tortious in their conversations with Robinhood? Again … I don’t know and I don’t care.

What I care about is changing the common knowledge – what everyone knows that everyone knows – about Wall Street and the market makers like Citadel that own the game.

What I care about is burning away the false and destructive narratives that companies like Robinhood are “democratizing” Wall Street or that oligarchs like Ken Griffin care about anything other than being a bigger oligarch.

My hope is that these smoking gun Robinhood internal communications can be a spark for all that.

An uncontained spark, President Griffin’s Snow’s greatest fear.

Also Not Ken Griffin

Our goal should not be to get democracy into Wall Street.

Our goal should be to get Wall Street out of democracy.

One last point, and you’ll want to hear this …

We almost didn’t get this spark.

Robinhood and Citadel obviously wanted to extinguish any record of these chat conversations, or at least keep them secret so that a settlement would bury them forever. But here’s the thing …

The plaintiffs wanted to keep these chat conversations secret, too.

I mean, I get it. The plaintiff lawyers here wanted to keep their smoking gun evidence under seal as leverage for a blockbuster settlement for their clients. What do you think Robinhood and Citadel would have paid to keep all this under wraps? $200 million? A billion? More? And since you’re working on contingency, well … you can do the math.

So that’s exactly what the plaintiff lawyers did, they filed a motion to keep their complaint under seal. NOT because they agreed with Robinhood and Citadel that the chat records were confidential or privileged (because if they agreed to that, then maybe the chat records would be thrown out or otherwise ruled inadmissable), but because they wanted more leverage in a settlement. From the defendants’ perspective, of course they’d prefer to throw out the recordings entirely, but keeping them under seal and away from the public eye was a good fall-back position.

So the plaintiffs filed an unopposed motion to keep their complaint and the damning chat records under seal, meaning that they would never see the light of day when Robinhood and Citadel settled.

But the judge said screw that.

Upon review of the Motion, the Court is left unconvinced the presumption in favor of public access should be cast aside. While Plaintiffs state the Stipulated Protective Order requires them to file the Master Complaints under seal (see Mot. 2–3), the parties fail to explain why it is necessary to deprive the public of access to allegations that form the foundation of the several cases in this MDL. …

Although portions of the Master Complaints may contain the type of confidential information that should be shielded from public disclosure, there is no apparent reason to seal the Master Complaints other than the parties’ agreement, which is insufficient. Redaction of those portions which contain confidential information, as Plaintiffs have already done, is more appropriate. …

Accordingly, it is ORDERED AND ADJUDGED that Plaintiffs’ Unopposed Motion for Leave to File Under Seal [ECF No. 357] is DENIED.


This is where the Nudging State and the Nudging Oligarchy would have seen the spark contained and extinguished. Thanks to this judge, it was not.

I give you the true hero in this case, Judge Cecilia Altonaga.

Judge Altonaga is the first Cuban-American woman appointed to the federal bench, by George W. Bush in 2003. She is the Chief Judge of the US District Court for the Southern District of Florida.

Not all heroes wear capes. But some wear robes.

Welcome to the Pack, Judge Altonaga.

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  1. And watching it play out on Twitter, fascinating with some stupidity thrown in. Feels like there’s a clock counting down, everybody’s waiting on the oxygen to light it up. Only in our bizarro world that is 2021, it hasn’t happened already.

    Vlad , from my vantage point, looks to have boxed himself in. If I had to guess, I’d say Robin Hood’s next move is to play the Kaplan, Rosengren card for Mr. Swartwout, where he retires on Monday so he can spend more time with his family. Then there’s probably an LSU card to play, we will hire independent auditors to verify/confirm our policies and procedures for future events. Probably self impose a bowl ban for next year too.

  2. Avatar for glarri glarri says:
    1. Awesome post Ben, thank you. As I always say or think when someone is accused of something horrible and I have no way of knowing if the accused is guilty, “I hope that justice is served”, which includes exonerating the innocent. Although the evidence presented here really does look like a smoking gun, I will wait and see what emerges.

    2. I totally get why you are angry. The more this is allowed to continue, the more we are creating hell on earth. My reaction is strangely not anger, it is just the question: What can I do to help fix this, even if it is something small, like living as honestly as I can in a fallen world, while working out how to get into a position to do something that is a bigger contribution.

    3. We have to get back to holding people to high standards of ethics in public life. As the story is told by Jordan Peterson (I have not read the original source) when Nietzsche said “God is dead” it was not with triumph, it was with terror, because Nietzsche saw that the entire moral/ethical framework of Western society was resting on a foundation of Christian teaching instilled by 1000+ years of almost tyrannical rule by the Catholic Church and its Protestant children, and that if that foundation is taken away, you can’t expect the entire structure to stay suspended in the air; it will come crashing down. The power of the church to instill into people a personal fear of immoral behavior has diminished substantially, and we have not replaced it with another education system that instills that deep personal fear of getting it wrong. The result is that while I believe the church was wrong that bad behavior takes you to another place called Hell, they were kind of right because it creates Hell on Earth. Throw in a bit of reincarnation; or the Hindu belief that we are all incarnations of the same consciousness (we are all one); or just that we live on through our children, then the Christians are right: Behave badly and you will go to Hell for eternity, and it will be Hell right here. on planet Earth. That is what we are seeing right now, and we have to wake people up to this, and the basic responsibility to look after each other, the old Biblical “look after the widows and the orphans”.

    4. David Miliband wrote an article published in Foreign Affairs on May 13, 2021 called " The Age of Impunity" which is exactly what Ben has been railing against - people taking hundreds of millions of dollars, harming hundreds of millions of people, and just walking away with a smile on their face when their 100 year old bank goes bankrupt. The subtitle of Miliband’s article is " And How to Fight It". I will read it this weekend. I’m hoping that he has something useful to say (he often does).
      The Age of Impunity

    I can’t thank Ben, Rusty, and the entire Epsilon Theory team enough. The education you have been providing for the last several years is truly amazing.

  3. “Everyone is talking about crime,
    Tell me who are the criminals?
    I don’t want no peace,
    I need equal rights and justice”

    Peter Tosh

  4. *Checks headlines… *chirp *chirp *chirp

    Ever since I randomly stumbled across the Epsilon Theory note “This is Water”, I have been a regular reader. Thank you for providing this valuable oasis of wisdom in our desert of media renfields.

  5. DISCLAIMER: I wish I could post this anonymously, but hopefully this helps from sounding like virtue signaling.

    The following is a lesson from my ‘fun’ over the prior decade of getting caught as a pawn in the crossfire of corruptible elites scheming against each other. Generally, the lawyers / officials appear to have ran a confidence trick (blend of protection racket, and badger game) against a young, fast growing RIA firm > $1B AUM with substantial allocations to muni issues / PE-- very attractive to those appearing to have a history of seeking out lesser marks.

    My involvement is a direct result of me not trusting my wife’s discernment (I hope to never do that again) and my lack of faith that God / providence / the universe / karma was going to provide, especially given my personal weaknesses, and failures. It was my own foolishness, arrogance, pride, compounding bad choices, poor stewardship, inability to put my head down and do the daily hard work necessary, and other professional failings that led to this. So I am not the good guy while the others are the criminals. Well, I mean they are, but me being the means was my own fault.

    Rebalance social inequity right in front of you for just one moment:
    I started driving through the lower-end parts of town and looking for someone that appeared to have less than me. I then give them whatever cash I had in my wallet. I don’t ever carry much ($20 - $40). I often say “God wants you to have this more than me” or “you deserve this more than me.”

    I will still have more in the bank (maybe), more capacity to earn income, a decent home, more stuff. But for that one small instant, that person has more than I do. Yes, it could be enabling an addiction. Or they might use it to feel human, or to get something nice for themselves or someone else. And they will be treated as an adult - capable of deciding what to do with it.

    I started this when I was at an emotional bottom, even though facing possible ruin from the lawsuit. But then I started getting connected with people who had lost everything because of systemic injustice. A former FDIC bank examiner and law school grad challenged robosigning after refinancing, just because he knew it was an issue and decided to expose it. He’s now divorced and evicted anyway. Thankfully his lawsuit led to saving others. The lawyer defending the bank and the robosigning person that didn’t work there at the time was just appointed to the Indiana Appellate Court. Another in a moment of frustration during a divorce hearing, threatened a judge. After a grand jury hearing, he was imprisoned and lost custody of daughters. The two recordings and two transcripts of the hearing he’s been provided are incomplete or don’t match. He now lives across the state border, has lost everything, missed his daughters’ childhoods, and still hasn’t been provided the recording even after a court ruled it must be provided. There is no doubt that he’s the best litigation attorney without a law degree.

    My favorite so far was a lady who clearly didn’t have many resources, planting flowers and plants around her house in a lower class neighborhood (across the road from one of the busiest railroads in the country), and where kids walk by on the way to elementary school:

    616 McDonald St

    Plants and flowers cost money obviously. Of course five blocks away Main Street has tax funded beautiful hanging flowers on every light post.

    On the days I do this, Noraa Setaoc (wow, that’s painful Neb @bhunt) acts, thinks, and feels more like the man he wishes he was all the time, but fails to be on most days. On those days I am not a product of white, upper-middle class, college educated, high IQ, well respected parents that led to a decent college degree, no student debt and some early professional cred. I need to do a better job of getting back in the habit post critical covid, which has been a Noraa excuse.

    Consciously acknowledging that I won the lottery of systemic inequity to another who won less or lost, even for just one moment in time, helps me avoid becoming blind to my advantage. My wife, who’s entire career has been righting social inequity with teen moms, agreed to adjust the budget so that I do this weekly.

  6. Ben, just reread the note and specifically the judge’s order, how did you catch it? The order is dated July 27, 2021, guess I’m asking why am I reading this now? I haven’t looked, but would litigation have to be noted in SEC filing?

  7. Why? Why do a majority of the actions from mainstream media show they have generally lost interest in pursuing investigative journalism for hard topics such as this? Incompetence in their ranks? Or more nefarious explanations?

  8. Media (generally) exists for one reason: to sell you laundry detergent and car insurance. CNN and Fox have the same goal, after all. Ratings mean eyeballs can be sold by the 30 second sliver and the higher they are the more those precious seconds are worth. Nobody wants long form, thoughtful investigations and commentary, right? Well we do, which is why we pay to be here. It’s why Substack is slowly but surely eating up journalists and commentators. It’s why podcasts have become the behemoth that will finally kill off radio (maybe). Traditional media has not responded to the new market, a market that incentivizes authenticity and free expression. The Brian Stelters of the world still think that it’s 1991 and we can’t get our Gulf War coverage anywhere other than CNN. But people are wising up.

  9. I may be a little dramatic here, but I think this is Gary Gensler’s one clean shot at the king and if he misses…

    Gensler rode in to the SEC with a lot of gusto, but if he and his people can’t find their way to at least attempt to go after Swartwout (I’m not holding out any hope of Griffin being pursued) then it becomes another in a long line of failed institutions that the public, specifically the less scrupulous members of the public, will fear no longer. I think a lot of us in the business already roll our eyes when we read an SEC enforcement statement because we know it’s just another low level dude (and it is almost always a dude) who made $43,000 trading short dated, out-of-the-money calls on a company he knew was being acquired. BFD. It seems like they have no time for the biggest crooks, but for the little guys who are trying to score a few years worth of salary in one shot they have an inexhaustible supply of manpower. If this Robinhood/Citadel situation doesn’t result in a very public investigation then what’s the SEC even there for?

  10. It gets a little mention in the 10 Q filed on August 18, 2021. I guess Mr. Swartout is “whether any employee trading in the securities may have occurred in advance of the public announcement”. The problem with the SEC, may take forever for this to actually see the light of day.

  11. Avatar for rguinn rguinn says:

    Sure, stipulated, but this topic would be easily transformed into exactly that kind of fodder, couldn’t it? In the same way that we lament it isn’t being covered at all, we would surely roll our eyes when they did cover it in a way that gave too much credence to all of the Reddit-based analyses of whether a document posted by Citadel on Twitter had been forged based on font kerning or some such.

    Which brings me back to wondering - why didn’t that happen? Is it just as simple as, “Not interesting enough to justify arousing the wrath of a billionaire?” They don’t seem to mind taking Zuckerberg or Bloomberg to the woodshed when it’s time for their penance. Maybe I simply overestimate how salacious this is and underestimate how inside baseball it is.

  12. Also from 10-Q filing August 18, 2021, anybody know who Tai Mo Shan Limited/Jump Trading Group is? They look to be replacing Citadel as market maker for Robin Hood, going from 2% in 2020, to 20% in 2021 through the first 6 months of the year.

  13. I think that’s because Zuckerberg (and to a lesser degree Bloomberg) want to be in the club and Griffin seems to be captain of the S.S. DGAF. Zuck will play the game and speak to Congress because somewhere deep inside of him he still wants to be the cool kid who other cool kids in media like and respect. He will apologize and show contrition, something I highly doubt Griffin would be interested in doing.

    Indulge me for a moment while I take this to a much more weird level. Why have activists given up on going after Trey Parker and Matt Stone? In a world where a tweet from when you were 16 gets you mobbed and cancelled why have the guys behind South Park been able to just stroll on by? Because they never give any oxygen to the activists. They never apologize. They never feed that insatiable beast. If you demonstrate that you’re willing to bend the knee once then you’ll be expected to do it over and over again. Targets are chosen not just based on what they allegedly did but also how much gratification their struggle session can give to the mob. Griffin doesn’t strike me as the apology type. Why make enemies with the super-rich Bond villain guy when there are much easier targets out there?

  14. Excellent. The “cool kids” analogy explains so many other things as well. Like why investigative journalism doesn’t exist anymore in the mainstream media, how AOC went from Justice Democrat to Just Another Democrat…

    Another mechanism I see with Griffin is that the Robinhood phenomenon is such a huge cash cow for the financial media. They’d rather not prick that bubble if they don’t have to.

  15. A great post Ben and fingers crossed that the result is change…so badly needed. Many comments support change and bad people being outed in the process. I am also reading posts not afraid to mention the possibility that we might be beholden to something/somebody more meaningful and powerful than us, our material possessions, placing us in a position to influence family, friends and strangers in a meaningful way through solid and equal purdence in our private and public lives. The posts regarding God and religion for instance are the first I have read in public,…although I do not ingage in social media any more since the ability to converse is lost and the behavior towards others is disturbing… and is very refreshing actually since the message really points to a higher way of thinking about our purpose in life and our behavior generally and towards each other.

    Exposing my soft underbelly is the admittance that thinking and behaving on a higher level was not always my forte. It was the eventual realization that it did not feel good, and when it was directed at me as well…change is a process, transitionary and takes time. I pray change is happening - have never experienced the divisiveness that is currrently going on as another example of evil at work - yet I digress for a moment.

    Back to a higher level: We are all born with natural laws of the heart - not to kill, steal, talk falsey and “love” thy neighbor (7 more to go!). None of us are perfect of course, but what if just another 10%-15% of the population in the U.S. began living their lives differently based on these LOTH; at home, at work, with friends, towards strangers…all the decisions we make daily. This is equivilent to the population nearing that of California that would (if they were unafraid of acting and speaking up) begin influencing the general narrative, media, politics, neighbors, etc. If we are waiting for the folks at the top we are destined to be disappointed and perhaps failure in a big way.

    I believe it can be done, not with crossed fingers but a cross in the hand.

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