Robinhood Might Face a Class Action for Repeated Trading Outages

Wednesday, 27/10/2021 | 07:51 GMT by Arnab Shome
  • Traders are seeking court intervention to compel the broker to change its organizational and operational structures.
Robinhood Might Face a Class Action for Repeated Trading Outages
Robinhood's iOS trading app

A group of Robinhood traders has approached a US court seeking certification of class against the Trading Platform for its repeated outages during the market Volatility of spring 2020.

As reported by Law360, the class certification represents nearly 7 million funded account holders on the commission-free brokerage platform. Accounts with at least one equity or option position during the March 2 outage can join the lawsuit if it is granted by the court.

The representatives of the proposed class argued in a California court that the trading platform breached its contract and fiduciary obligations to customers with the repeated outages. Furthermore, they alleged a breach of the regulatory requirements by the broker that acted in a ‘reckless, profit-driven manner’.

Repeated Outages

Robinhood faced multiple outages during March 2020 when the stock market was extremely volatile. One of the outages on the day of a major market rally even lasted for an entire trading day, barring its clients from participating in trading.

“Plaintiffs present a fulsome damages analysis demonstrating losses well into the tens of millions, before punitive damages and interest,” the proposed class stated in the motion filed on Friday.

“Put plainly, Robinhood needs the court's intervention to protect customers.”

Traders, who moved against the broker, said that their damages model in economic losses is in the ‘form of a loss of flexibility, i.e. investors were unable to make trades to capitalize gains, to mitigate losses and alter the risk profile of their investments’.

In addition, it will consider losses as customers could not open any new positions and the open positions that could not be closed during the outage.

“Given Robinhood's long track record of outages, without injunctive relief, there is nothing to ensure that Robinhood will change both its organizational and operational structures so that Robinhood's users will be able to trade efficiently without undue delay and unnecessary risk,” the motion added.

Earlier, Robinhood faced tens of millions of dollars in penalties brought against it by multiple US regulators. However, the popularity of cryptocurrencies on the platform is fading due to the rising American competition.

A group of Robinhood traders has approached a US court seeking certification of class against the Trading Platform for its repeated outages during the market Volatility of spring 2020.

As reported by Law360, the class certification represents nearly 7 million funded account holders on the commission-free brokerage platform. Accounts with at least one equity or option position during the March 2 outage can join the lawsuit if it is granted by the court.

The representatives of the proposed class argued in a California court that the trading platform breached its contract and fiduciary obligations to customers with the repeated outages. Furthermore, they alleged a breach of the regulatory requirements by the broker that acted in a ‘reckless, profit-driven manner’.

Repeated Outages

Robinhood faced multiple outages during March 2020 when the stock market was extremely volatile. One of the outages on the day of a major market rally even lasted for an entire trading day, barring its clients from participating in trading.

“Plaintiffs present a fulsome damages analysis demonstrating losses well into the tens of millions, before punitive damages and interest,” the proposed class stated in the motion filed on Friday.

“Put plainly, Robinhood needs the court's intervention to protect customers.”

Traders, who moved against the broker, said that their damages model in economic losses is in the ‘form of a loss of flexibility, i.e. investors were unable to make trades to capitalize gains, to mitigate losses and alter the risk profile of their investments’.

In addition, it will consider losses as customers could not open any new positions and the open positions that could not be closed during the outage.

“Given Robinhood's long track record of outages, without injunctive relief, there is nothing to ensure that Robinhood will change both its organizational and operational structures so that Robinhood's users will be able to trade efficiently without undue delay and unnecessary risk,” the motion added.

Earlier, Robinhood faced tens of millions of dollars in penalties brought against it by multiple US regulators. However, the popularity of cryptocurrencies on the platform is fading due to the rising American competition.

About the Author: Arnab Shome
Arnab Shome
  • 6359 Articles
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About the Author: Arnab Shome
Arnab is an electronics engineer-turned-financial editor. He entered the industry covering the cryptocurrency market for Finance Magnates and later expanded his reach to forex as well. He is passionate about the changing regulatory landscape on financial markets and keenly follows the disruptions in the industry with new-age technologies.
  • 6359 Articles
  • 80 Followers

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