Kristina Partsinevelos, of FOX Business, analyzes what is happening with the brokerage app Robinhood and how users reacted to the company that limited trading this week.
To hear Robinhood traders speak, there is a new and easy way to make money from the Reddit-Robinhood saga: take a class action lawsuit against the platform that stopped trading earlier this week.
But, like GameStop’s stock, the stock that caused the problem in the first place by rising to $ 500, the stake in the lawsuit may be overblown.
Small investors in apps like Robinhood lost thousands of dollars in speculative stock choices, as platforms like Robinhood, Cash App and Stash interrupted trading earlier this week. Day traders who used the app to earn some extra money panicked when the brokers they trusted refused to complete their trades.
FOX Business has received dozens of messages and inquiries from investors who have lost money and want to take collective action.
While many are eager to join the movement in search of restitution, the likelihood that these cases will actually pay people is small, legal experts told FOX Business. Columbia University law professor Joshua Mitts advises: “I would not think that you will get your money back.”
The administrative director of TJM, Tim Anderson, is more direct: “I am convinced that the collective lawsuits will not lead anywhere”.
NY AG REVIEW ROBINHOOD AFTER THE RESTRICTED PLATFORM FOR THE NEGOTIATION OF CERTAIN TITLES THURSDAY
Several class action lawsuits have been filed – including in the prominent Southern District of New York. Proceedings are gaining momentum in various Reddit groups, as many day traders shift their trading energy to put it on Robinhood.
Ironically, a group of crowdsourcing subscriptions, Do Not Pay, is known as “The Internet Robinhood”. Do Not Pay, an online legal service that costs $ 3 a month, allows users to sign the lawsuit filed in the Southern District of New York.
Do Not Pay CEO Josh Browder told FOX Business that more than 26,000 users have signed up for the class action lawsuit since they launched this feature on the site. “We want to give people options to fight back,” said Browder.
In a class action lawsuit, the more people who claim to be injured, the stronger the case becomes. “It is not a technical requirement to have signatories, but it does help to have a chance that the court will hear it,” adds Mitts.
But simply writing down tens of thousands of signatures does not make this a strong case, according to legal experts.
THE ROBINHOOD TRADING APPLICATION IMPLIES USERS TO BUY GAMESTOP AND OTHER HIGH FLIGHT ACTIONS
Collective suits are most successful when the defendant is at fault. In a situation where it is not clear that Robinhood did something wrong, the plaintiff has a much more difficult case. “Even in highly culpable crimes like Bernie Madoff’s Ponzi scheme, people are lucky to recover their losses. … In that case, the buyer should be aware, ”says Mitts.
And Robinhood investors have been warned – they have voluntarily submitted to the platform’s terms of service, which means that the broker has not breached a contract, legal experts told FOX Business.
As investors struggle to lose money, theories abound as to whether the big hedge funds were behind Robinhood to stop trading. Barstool Sports founder David Portnoy posted extensively on Twitter suggesting that hedge funds, including Citadel Securities, which serve many of Robinhood’s order flow, were pressuring the smaller broker to halt Gamestop and AMC negotiations in order to to suit your interests. Point 72 invested notably in Melvin Capital, which lost billions in the short tightening of GameStop’s stock.
However, both funds are quick to refute the theory, saying that they make money dealing with negotiations and that, ultimately, it was Robinhood’s decision to disconnect the plug – a measure Robinhood did to minimize his liability as he entered conflict with the capital requirements that regulate how many trades it can establish.
PROTESTERS MEET IN ROBINHOOD HQ, SEC, NYSE
“What we don’t know is what their internal reporting mechanism was telling them and how their internal system was in ‘real time’ keeping up with the increase in trade volume,” says Anderson. Anderson adds that we don’t know all the problems that Robinhood may have dealt with behind the scenes yesterday, “Since Robinhood has had problems with the SEC before, they are trying to be extremely careful.”
At the discovery, more information will come to the fore as lawyers analyze whether Robinhood could have done more by accessing additional lines of credit earlier to allow clients to complete the negotiations. But for now, most theories are just that: theories.
To argue that Robinhood – and not a moving market – is to blame for people who lose money is hard to sell. Robinhood’s restriction on trading yesterday morning prevented investors from buying additional shares in more volatile stocks like GameStop, but it did not prevent users from selling their shares.
“From my understanding, Robinhood never prevented clients from closing existing positions,” adds Anderson.
CLICK HERE TO READ MORE ABOUT FOX BUSINESS
While these collective suits are not expected to give claimants a payday, they could redirect the conversation to the disparity between the resources that rich hedge funds have and those accessible to the average investor. “Being stuck at the exact moment when losses can be recovered is deeply offensive to the notions of justice and equity,” Mitts told FOX Business. “Hedge funds that have top-tier brokers can change a position at any time they want, so there is a question about different and disparate treatment.”
Some who work on the process are still optimistic that they can get a favorable result. Browder told FOX Business, “It’s a new era of consumers coming together.”