Prominent short seller James Chanos has lobbied White House economic aid not to curb the controversial business practice that has come under fire in recent weeks following the Robinhood trading frenzy, FOX has learned Business.

Chanos, according to a source with direct knowledge of the matter, has insisted to White House advisers on the importance of short selling, where traders make money if the value of a company’s shares goes down and does so. often by reporting issues with their finances and underlying business. It is not known whether the White House was convinced by his speech, this source said.

Chanos is a major Democratic Party fundraiser and a close friend of President Biden. The person said he had not spoken directly to Biden about it.

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A White House spokesman did not return a call for comment; Chanos declined to comment for this story.

In a short sale, the trader borrows stocks, sells them immediately, hoping to repay the borrowed funds when the stocks go down, pocketing the difference. Conversely, short sellers lose money when they are forced to repay borrowed stocks by buying stocks at higher prices.

Short selling has long been a controversial practice in a market where most investors hope their stocks will rise in value. While many investors hate short sellers, who often tout their negative research on stocks, regulators at the Securities and Exchange Commission, also known as the Wall Street Top Cop, have championed the practice. SEC officials say short sellers like Chanos provide the market with analysis that thwarts the overwhelming number of investors touting penny stocks and other speculative investments.

But short selling has come under renewed scrutiny after Robinhood’s recent trading spree. Hordes of small traders have picked up shares of heavily shorted stocks, such as AMC, Blackberry and GameStop, in an attempt to push stocks higher and cause massive losses among short sellers.

The results produced what is known as a “short squeeze,” where many hedge funds that bet against the shares of these companies lost significant amounts. The tightening forced one of those funds, Melvin Capital, to seek additional capital from outside investors.

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Controversy erupted when Robinhood responded to the pressure by limiting the buying of these stocks for a period of time, angering many clients who said the trading platform was protecting its clients from losing hedge funds. silver. For example, Citadel Investments buys what is known as Robinhood’s order flow, matching buyers and sellers and allowing the company to charge zero commissions to its business customers. A separate hedge fund managed by Citadel CEO Ken Griffin has invested $ 2 billion in Melvin.

Robinhood and Citadel have both vehemently denied that there was a link between investing and stopping trading in stocks, reiterating this during congressional testimony last week.

Robinhood CEO Vlad Tenev spoke of a weakening of the capital position to settle the huge volume of transactions due to the need to halt the purchase of these shares. But that hasn’t stopped the attacks on short sellers. Barstool Sports chief and day trader Dave Portnoy has repeatedly attacked Tenev for effectively putting an end to the short-term pressure and costing people like him who were long in the frenzy stocks to lose a lot of money. silver.

On Tuesday, Portnoy intimidated Tenev during a scheduled online debate.

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Now, some members of Congress are evaluating the limits of the practice. Last week, the House Financial Services Committee hearing discussed the practice that its chair, Maxine Watters, called “predatory.”

Fearing possible new regulations, Chanos is trying to place himself in front of the efforts of lawmakers.

Chanos, who runs Kynikos Associates, has been credited with uncovering some of the biggest stock market frauds of recent years, including the Enron scandal. He also had some notable hiccups; Chanos’ electric vehicle maker Telsa was severely bypassed, earning it hostility from Tesla founder Elon Musk for criticizing the company’s vehicles and finances and once qualifying Tesla of “walking insolvency”.

Chanos was forced to significantly reduce his short position in Tesla as shares continued to rise and the company overcame production issues. That said, late last year Musk admitted that the automaker was indeed on the verge of bankruptcy when it rolled out its Model 3 vehicle.

Meanwhile, Chanos is also said to have targeted a proposal by Tenev of Robinhood to change the time it takes brokers to top up or “settle” inventory. Currently, regulators impose a two-day settlement period, known as T + 2. Tenev argues that the longer T + 2 lead time caused Robinhood to reduce trading on Frenzy-related stocks or face the possibility that he was running out of cash he needed to settle trades. If the trades were settled immediately, Robinhood would not have halted trading as it would have had sufficient liquidity to meet its capital needs.

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But Chanos told White House economists that the two days are needed to ensure transactions are processed properly and because it allows short sellers to locate stocks to borrow before selling them. If the stocks were immediately settled, traders would not be able to locate stocks, he argues. What is called T + Zero would essentially end short selling, he said.

This could be good for Robinhood’s business model – the company is based on buying stocks, including penny stocks, and doesn’t allow short selling. But that would deprive the market and many small investors of research that shows problems with company finances, Chanos said, according to the person with direct knowledge of the matter.

Stocks – including GameStop, AMC and others at the heart of the trading frenzy – have been sold heavily short based on research that has shown their business models to be on shaky ground. GameStop traded for up to $ 500 per share during the Frenzy, but recently fell. Still, on Wednesday, stocks rose again, jumping 104% to $ 91.71 late in the day after its chief financial officer announced his departure next month.

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A GameStop spokesperson did not return a call for comment; a Robinhood spokesperson did not comment.