Robinhood Class Action Lawsuit
Robinhood is Under Attack
The trading app survived the GameStonk Debacle, but the war is not over yet.
In this article:
- Recap of the GameStonk events
- When did the lawsuits start?
- What is Robinhood’s defense against these first suits?
- Did Robinhood conspire with other big banks?
- Did Robinhood cause a death?
- What else are people doing to get back at Robinhood?
Recap
Unless you’ve been living under a rock, you've heard of the GameStonk debacle.
Over the course of a crazy couple of days, a horde of redditors pumped up the value of the stock in a short squeeze.
While many walked away with a bag of cash, others are still holding on as the stock continues to dwindle away, indicating their ‘diamond hands’ (check urban dictionary for that one).
While most are a playful bunch, there are many that participated that are not as giddy. There are a number of lawsuits in the works for those who feel Robinhood needs to be held accountable for its involvement in the events.
The lawsuits begin
There are over 30 lawsuits pointed at Robinhood and its allies as of today.
It began with a Massachusetts man, Brendon Nelson, demanding that Robinhood pay for damages incurred by depriving users of the chance to buy GameStop stock during a halt in trading.
This caused the price to plummet, as people could only sell or hold their stocks.
Another complaint filed in California names of all the major trading platforms, claiming they engaged in a conspiracy and violated antitrust laws during their purchase prevention.
Robinhood’s defense
Robinhood has two defenses so far.
Firstly, in a blog post, they describe the issues they had with clearinghouse, which oversees all securities transactions.
Robinhood, like every trading platform, has to ‘balance its books’ every trading day based on stock prices and volatility. During those few crazy GameStop days, their, “clearinghouse-mandated deposit requirements related to equities increased ten-fold.”
Basically, they couldn't meet these requirements, so they had to limit trading in order to keep up. Or so they say.
Their second defense, which piggybacks on the first one, is simply that Robinhood has the power to stop stock buys without any prior notice. This is noted in its customer agreement, which is signed before opening an account.
Did Robinhood conspire with others?
That's not stopping the lawsuits from coming, and there's a couple new angles people are taking.
A new suit from Miami law firm, The Ferraro Law Firm, and other attorneys, alleges that Robinhood acted in bad faith, violated securities laws, and manipulated its users.
In addition, the suit accuses Point72 and Citadel services of engaging in conspiracy with Robinhood to protect Melvin Capital, which had bet heavily against GameStop.
Both Point72 and Citadel have denied any involvement in the trading halt of Gamestop. This directly opposes a now-deleted tweet from Justin Kan that cited a tip that Citadel reloaded their shorts before telling Robinhood to restrict trading of $GME.
Make what you will of that.
Deadly effects
Another lawsuit is taking a different angle.
The parents of Alex Kearns are suing Robinhood, claiming that they prey on inexperienced investors.
Back in June, Robinhood emailed Kearns notifying him to deposit $178,000 USD to help offset a -$730,000 USD balance in his account.
The company didn't inform him that he had more than enough in his account to cover the $178,000 USD. The money simply would have been erased by the exercise and settlement of this perceived debt.
After attempting to contact Robinhood, he was unable to connect with them. He panicked and took his own life.
The company has since added a live voice support function to help mitigate these kinds of situations.
Other methods of revenge
If the immense number of lawsuits wasn't enough, some people are simply storming the castle itself.
People are driving to the company's headquarters in California with demands to speak to a representative.
Others are vandalizing the property. According to police reports, one suspect used a saw to destroy a sculpture, and another threw animal feces at the front door.
There are also reports of Robinhood customers visiting the headquarters to simply get the money out of their account, after their funds were on hold for no apparent reason.
Amidst all of this, Robinhood has seemingly been thriving, with record downloads and new funding from around Wall Street.
-by Arlen Dancziger
30 lawsuits
https://www.pcmag.com/news/robinhood-now-faces-over-30-class-action-lawsuits-for-blocking-stock-buys
Robinhood blog
https://blog.robinhood.com/news/2021/1/29/what-happened-this-week
Miami lawsuit
https://www.miamiherald.com/news/business/article249159860.html
Wayback machine Justin Kan tweet
https://web.archive.org/web/20210128230010/https://twitter.com/justinkan/status/1354853920762253315
Suicide
At the headquarters
Record downloads
New funding
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Who Is Matt McKeever?
Matt McKeever is a CPA, CA and Real Estate Entrepreneur in London, Ontario. On his YouTube Channel with over 70,000 subscribers and 4,000,000 views Matt discusses a variety of real estate and personal finance strategies and tactics. Including: How to BRRRR Real Estate, The Importance of Investing for Cash Flow, How to Reach Financial Independence Retire Early, Safe Withdrawal Rates, Frugality and Reducing Personal Consumption & Embracing Minimalism.
Matt began investing in real estate at age 25 by purchasing a student rental near Fanshawe College
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