Robinhood Must Pay User $29,460 Over Meme Stock Trading Halt

The Robinhood logo displayed in front of meme stock Gamestop logo, February 2021. Photo: Pavlo Gonchar / SOPA Images / LightRocket via Getty Images (Getty Images)

In January 2021, the stock trading app Robinhood infuriated users when it responded to rising trading in so-called meme stocks, by termination of transactions— effectively preventing users from selling shares until prices collapsed. congressional hearings, regulatory probes, and a torrent of regulatory complaints and lawsuits followed, which was at least one cause of the IPO miserable post IPO performance. A year later, at least one investor finally managed to force Robinhood to pay for the fiasco.

if Marketwatch reported for the first time, on January 6, an arbitrator with the Financial Industry Regulatory Authority (FINRA) ruled in favor 27-year-old truck driver Jose Batista’s May 2021 complaint that the restrictions have caused him to lose significant amounts of money as the stock trading app owes him nearly $29,500 in refunds. FINRA has previously beaten Robinhood by about $70 million in fines for system failures in March 2020, providing false and/or misleading information to investors and failing to comply with rules designed to protect investors; the Securities and Exchange Commission also fined the company $65 million in 2020 on similar grounds. But according to Marketwatch, this is the first time that complaints from retail investors specifically related to the 2021 meme stock restrictions have led to a monetary judgment.

That may be because previous attempts to make the company pay were based on elaborate theories. Robinhood stopped the transactions at please partner Citadel Securities, its main market maker. The exact nature of Robinhood’s relationship with Citadel caught the attention of angry investors and… members of the congress. FINRA has previously concluded that the allegations of collusion were unfounded.

The term “Meme Stocks” refers to a class of speculative investments fueled by social media frenzy. The January 2021 wave of meme stock was fueled by Reddit’s r/WallStreetBets board, which had put together a plan to effect a so-called short squeeze on video game retailer Gamestop. Short selling is when investors borrow and then sell shares in a poorly performing company with the expectation that the price will fall, resulting in a profit when they buy back the shares and return them at a lower price. The squeeze is a high-stakes investment maneuver where if the stock rises, anyone who holds it the moment the short seller is forced to exit their positions is effectively milking them for profit.

/rWallStreetBets targeted hedge funds with short positions against the nostalgic Gamestop brand they saw as predatory vultures; when this worked everyone’s wildest fantasy, it quickly sparked a wave of speculative investment in other companies that users believed were in need of a revival. In January 2021, Robinhood temporarily blocked trading of a number of meme stocks, causing many users to miss out on profits or incur huge losses because their investments were frozen during price swings. The company’s excuse was that volatility de deposit requirements, the collateral required by clearing houses to ensure transactions are secured, beyond what it could handle immediately.

Batista took a “narrow and specific case” against Robinhood, according to Marketwatch, saying he was focusing on how the restrictions prevented him from making his investments in headphone maker Koss and fast-fashion retailer Express Inc. to manage. Shortly before the restrictions went into effect, Koss was trading at $58 a share and Express was trading at $9.55; by the time Robinhood lifted them, Koss had fallen to $35 and Express shares were only $5. (Although he had Gamestop shares, he had no intention of selling at the time, he told Marketwatch.)

“My plan was to sell Koss and Express that day,” Batista told the site. “I had a lot, but no one could buy it… They didn’t really leave me any other option. They said, ‘You’re just stuck. If you want to sell it. Sell it.'”

“It was hard to watch,” he continued, though adding that the matter hasn’t deterred him from meme stocks in general and he continues to trade them.

In the ruling, public arbitrator John James McGovern Jr. that two Robinhood divisions were jointly liable for $29,460.77 in compensatory damages plus interest. He also ordered Robinhood to refund the non-refundable portion of Batista’s FINRA filing fees, telling the company it would have to pay the costs associated with 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, securities litigation attorney Francis Curran, gave them a more cautious interpretation: about the place of this sort. arbitrages… I think it’s too early to tell if this is the first of a trend.’

Robinhood has not responded to a request for comment on this story, and we’ll update if we hear anything.

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