Robinhood Ordered to Pay User Nearly $30,000 Over Meme Stock Trading Halts

In January 2021, inventory buying and selling app Robinhood infuriated customers when it responded to surging trades of so-called meme shares, by halting trades—successfully stopping customers from promoting shares till the costs had collapsed. Congressional hearings, regulatory probes, and a deluge of regulatory complaints and lawsuits ensued, which was a minimum of one reason for its preliminary public providing’s wretched post-IPO performance. A 12 months later, a minimum of one investor has lastly succeeded in forcing Robinhood to pay out for the fiasco.

As Marketwatch first reported, on Jan. 6, an arbitrator with the Financial Industry Regulatory Authority (FINRA) ruled in favor of 27-year-old truck driver Jose Batista’s May 2021 criticism that the restrictions triggered him to lose vital quantities of cash, discovering the stock-trading app owes him practically $29,500 in restitution. FINRA has beforehand slapped Robinhood with roughly $70 million in penalties for system outages in March 2020, issuing false and/or deceptive info to traders, and failing to abide by guidelines designed to guard traders; the Securities and Exchange Commission additionally fined the corporate $65 million in 2020 on comparable grounds. But in accordance with Marketwatch, that is the primary time any retail investor complaints particularly associated to the 2021 meme inventory restrictions have resulted in a financial judgment.

That’s maybe as a result of earlier makes an attempt to get the corporate to pay up have relied on elaborate theories Robinhood halted the trades to be able to please partner Citadel Securities, its prime market maker. The precise nature of Robinhood’s relationship with Citadel attracted consideration from each indignant traders and members of Congress. FINRA has beforehand concluded the accusations of collusion had no advantage.

The time period “Meme stocks” refers to a category of speculative investments fueled by social media frenzies. The January 2021 wave of meme shares was fueled by Reddit’s r/WallStreetBets board, which collectively plotted to drag off what is called a brief squeeze on online game retailer Gamestop. Short promoting is when traders borrow and subsequently promote inventory in a poorly-performing firm with the expectation the worth will fall, leading to a revenue after they repurchase and return the shares at a lower cost. The squeeze is a high-stakes funding maneuver the place if the inventory as an alternative rises, anybody holding it on the time the brief vendor is pressured to exit their positions successfully milks them for revenue.

/rWallStreetBets focused hedge funds with brief positions in opposition to the nostalgic Gamestop model they noticed as predatory vultures; when this succeeded past anybody’s wildest creativeness, it shortly led to a wave of speculative investments in different corporations customers thought had been due for a rebound. In January 2021, Robinhood quickly locked down buying and selling in a lot of meme shares, leading to many customers lacking out on earnings or taking massive losses as a result of their investments had been frozen throughout value fluctuations. The firm’s excuse was that the volatility jacked up its deposit necessities, the collateral required by clearinghouses to make sure trades are secured, past what it may instantly deal with.

Batista made a “narrow and specific case” in opposition to Robinhood, in accordance with Marketwatch, saying that he targeted on how the restrictions made him unable to handle his investments in headphone maker Koss and fast-fashion retailer Express Inc. Shortly earlier than the restrictions went into place, Koss was buying and selling at $58 a share and Express was buying and selling at $9.55; by the point Robinhood lifted them, Koss was all the way down to $35 and Express shares had been simply $5. (While he had Gamestop inventory, he had no intention of promoting at that time, he advised Marketwatch.)

“My plan was to sell Koss and Express that day,” Batista advised the positioning. “I had a lot, but no one could buy it… They basically left me with no other option. They were saying ‘You’re just stuck. If you want to sell it. Sell it.’”

“It was tough to watch,” he continued, although added the matter hasn’t turned him off to meme shares normally and he continues to commerce them.

In the ruling, public arbitrator John James McGovern Jr. wrote that two Robinhood divisions had been collectively answerable for $29,460.77 in compensatory damages plus curiosity. He additionally ordered Robinhood to reimburse the nonrefundable $150 portion of Batista’s FINRA submitting payment, in addition to advised the corporate it has to pay out the charges associated to the arbitration course of.

Marketwatch famous that whereas it’s tempting to think about the case may open the floodgates for different claimants, Kudman Trachten Aloe & Posner securities litigation lawyer Francis Curran gave them a extra cautious interpretation: “There’s no precedential value to this award, and FINRA tends to go all over the place on these kinds of arbitrations… I think it’s too soon to tell if it’s the first of a trend.”

Robinhood didn’t reply to a request for touch upon this story, and we’ll replace if we hear again.