In January 2021, the Robinhood stock trading app infuriated users when it responded to the surge in trading in so-called stock memes, by suspend trade– effectively preventing users from selling stocks until prices have collapsed. Congressional hearings, regulatory probes, and a deluge of regulatory complaints and lawsuits ensued, which was at least one of the causes of its IPO miserable post-IPO performance. A year later, at least one investor has finally succeeded in forcing Robinhood to pay for the fiasco.
Like Marketwatch first reported, January 6, Arbitrator for the Financial Industry Regulatory Authority (FINRA) ruled in favor 27-year-old truck driver Jose Batista’s complaint in May 2021 that the restrictions cost him significant amounts of money, finding that the scholarship app owes him nearly $ 29,500 in damages. FINRA has already slapped Robinhood with around $ 70 million in penalties for system outages in March 2020, dissemination of false and / or misleading information to investors and failure to comply with rules designed to protect investors; the Securities and Exchange Commission also fined the company $ 65 million in 2020 for similar reasons. But according to Marketwatch, this is the first time that complaints from retail investors specifically related to the 2021 memes stock restrictions have resulted in a monetary judgment.
Perhaps it is because previous attempts to charge the company have relied on elaborate theories that Robinhood halted transactions in order to please partner Citadel Securities, its main market maker. The exact nature of Robinhood’s relationship with Citadel has drawn the attention of both angry investors and members of congress. FINRA previously concluded that the collusion charges were unfounded.
The term “Meme stocks” refers to a class of speculative investments fueled by the frenzy of social media. The January 2021 meme stock surge was fueled by Reddit’s r / WallStreetBets board, which collectively conspired to achieve what’s called a short squeeze on video game retailer Gamestop. Short selling is when investors borrow and then sell shares of a poorly performing company in the hope that the price will drop, resulting in a profit when they buy back and return the shares for a lower price. . Squeeze is a high stakes investing maneuver where, if the stock goes up instead, anyone holding it at the time the short seller is forced to exit their positions effectively trades them for a profit.
/ rWallStreetBets targeted hedge funds with short positions against the nostalgic Gamestop brand they saw as predatory vultures; when it succeeded beyond anyone’s wildest imagination, this quickly led to a wave of speculative investment in other companies that users believed needed to bounce back. In January 2021, Robinhood temporarily blocked trading in a number of memes stocks, causing many users to miss out on profits or suffer big losses because their investments were frozen during price fluctuations. The company’s excuse was that volatility drove up its deposit conditions, the guarantee required by clearing houses to guarantee the security of transactions, beyond what it could immediately manage.
Batista has filed a “narrow and specific case” against Robinhood, according to Marketwatch, saying he has focused on how restrictions have kept him from managing his investments in helmet maker Koss and fast fashion retailer. Express Inc. Shortly before the restrictions were put in place, Koss was trading at $ 58 a share and Express at $ 9.55; by the time Robinhood lifted them, Koss had fallen to $ 35 and Express shares were only $ 5. (Although he has Gamestop shares, he had no plans to sell at this point, he told Marketwatch.)
“My plan was to sell Koss and Express that day,” Batista told the site. “I had a lot of them, but no one could buy it… Basically, they didn’t give me any other option. They were like, ‘You’re just stuck. If you want to sell it. Sell it. ‘”
“It was difficult to watch,” he continued, adding that the deal had not dissuaded him from turning to memes in general and that he continues to trade them.
In the decision, public arbitrator John James McGovern Jr. wrote that two divisions of Robinhood were jointly liable for $ 29,460.77 in compensatory damages plus interest. He also ordered Robinhood to reimburse the non-refundable $ 150 portion of Batista’s FINRA filing fee, and told the company it had to pay the costs related to the arbitration process.
Marketwatch noted that while it’s tempting to imagine the case could open the floodgates for other plaintiffs, Kudman Trachten Aloe & Posner’s securities litigation lawyer Francis Curran gave them a more cautious interpretation: on the spot on this kind of arbitrage … I think it is too early to say if this is the first of a trend.
A Robinhood spokesperson declined to comment on the record for this article.
Update: 3:00 p.m. ET: This article has been updated to reflect Robinhood’s response to Gizmodo’s request for comment.