Frustrated investors suing after trading outside of crazy stocks like
Online brokerage
While users of the trading platforms claim in court that they have suffered losses due to the restrictions, legal experts say that brokers have wide powers to block or restrict transactions, all of which are spelled out as part of the client agreements everyone signs to access the services. .
Look: Vlad Tenev, co-founder and CEO of Robinhood Markets, discusses why he decided to limit the purchase of 13 bonds on the platform, the criticism he and the platform endured, and his business strategy.
(Source: Bloomberg)
“I look at the Robinhood contract and it says in black and white that they can block or restrict trade at any time,” said Jeff Erez, who runs a Miami law firm specializing in security fraud lawsuits and claims. a lawsuit filed against Robinhood last year regarding service interruptions. “I am not aware of any law that gives you the right to buy a certain security from a certain brokerage firm.”
Maverick Traders
The lawsuit comes after a group
In a lawsuit filed in New York, Robinhood user Brendon Nelson of Massachusetts said the company had removed GameStop from its trading platform amid an “unprecedented stock increase” depriving individual investors of the ability to market to invest and manipulate. The decision was, according to the complaint, a breach of his client agreement and violated the rules of the financial industry.
In a lawsuit in Chicago, Robinhood user Richard Joseph Gatz of Naperville, Illinois, said the cessation of trade in BlackBerry, Nokia and AMC “was to protect institutional investments to the detriment of retail customers” and concluded ”With other trading platforms. “The retail strike for these shares has caused irreparable damage and will continue to do so,” Gatz said.
Robinhood CEO
“We were not led by a market maker or any other market participant,” Tenev said in an interview with Bloomberg Television. “It was a technical and operational decision we made.”
He said the financial needs of the company, such as deposits at clearing houses, increase when there is a lot of volatility in the market, so ‘to protect the business and to protect our customers, we have temporarily eliminated these securities.’
Other customers have been sued in Florida, California and New Jersey. And New York Attorney General
Robinhood has been criticized in the past for allowing relatively unscrupulous investors to do risky transactions that have led to huge losses, and some commentators have expressed concern about the losses individual investors are likely to suffer if the Reddit-driven bubbles burst.
Broad discretion
Brokers have a wide discretion in restricting trades to provide flexibility in dealing with unusual situations such as technical failures, mechanical failures and errors, or to maintain an orderly market, said Joshua Mitts, professor at Columbia Law School, who specializes in corporate law.
“There is no obligation for a broker to accept traders unconditionally to buy, sell or short sell securities,” he said.
The lawsuits “are likely to be subject to dismissal based on the language of the client agreement,” he said.
“It is understandable that many investors are upset about the sudden restrictions on trading certain stocks,” especially if they have not read the user agreements very carefully, “said Tom Lin, a law professor at the Beasley School of Law. Temple, whose specialties securities include regulation. ‘The question of whether brokers should exercise power under the current circumstances is legitimate. There is probably so much more to this story than we know at the moment. ‘
Depends on situation
While user agreements are ‘fairly broad’ to make brokers work, it may not always be an absolute protection against aggrieved clients, says Timothy Blood, a partner at Blood Hurts & O’Reardon in San Diego. which represented investors in disputes with brokers.
“It will depend on the situation that arises,” Blood said.
There may be liability if a brokerage allows trading by some clients but not by others, especially if the person being denied requires access to the market to complete a longer-term strategy with additional transactions, Blood said.
“If a long-term plan is cut in the middlestream, the Robinhood clause will help, but it will not be the last word on the issue,” he said.
Double standards?
“I think it’s extremely rare for brokers to stop trading ‘without regulators determining it is necessary,” said Adam Gana at national security arbitration law firm Gana Weinstein.
The rise in share prices was due to “a group of investors coming together to buy a security”, and not a “conspiracy that increased the price”, he said. The filing of lawsuits “tells me that the brokers who have stopped their own will are likely to have a lot of problems – both at the regulatory level and in a civil litigation process,” he said.
While Robinhood’s client agreement clearly states that it may suspend trade at any time, well
“When hedge funds are going to lose due to a suspension in trade, they do not face such a closure, no suspension or downtime at the retail level,” Mitts said. “But if retail investors find themselves locked up, they can’t leave the trade.”
(Updates to Robinhood CEO comments in the 8th paragraph. An earlier version corrected a reference to Bloomberg Intelligence.)
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