FOX Business, Kristina Partsinevelos, outlines what’s happening to the brokerage app Robinhood and how users have reacted to the company trading this week.
Hearing Robinhood traders talk, there’s a new and easy way to make money from the Reddit Robinhood saga: join a lawsuit against the platform that stopped trading earlier this week.
But just like the shares of GameStop, the stock that caused the trouble in the first place when it rose to $ 500 a share, the lawsuit may be overestimated.
Small investors in apps like Robinhood lost thousands of dollars on speculative stocks as platforms, including Robinhood, Cash App and Stash, stopped earlier this week. Day traders used the app to earn a few extra dollars because the brokers they trusted refused to complete their transactions.
FOX Business has received dozens of messages and inquiries from investors who have lost money and want to take part in the lawsuit.
While many are eager to jump on the bandwagon and seek compensation, the likelihood of these cases actually repaying people is slim, legal experts tell FOX Business. Joshua Mitts, professor of Columbia Law, recommends, “I would not think you would get your money back.”
TJM’s managing director, Tim Anderson, puts it more bluntly: “I’m convinced the lawsuits are not going anywhere.
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Several class actions have been filed – including in the prominent Southern District of New York. The lawsuits are getting stronger in various Reddit groups as many day traders shift their energy from trading to capturing it at Robinhood.
Ironically, one group of unpaid Crowdsourcing signatures is called “The Robinhood of the Internet”. Do Not Pay, an online legal service that costs $ 3 a month, allows users to sign up to the lawsuit filed in the Southern District of New York.
Josh Browder, CEO of the not paid, tells FOX Business that more than 26,000 users have filed the class action lawsuit since launching this feature on the site. “We want to offer people options to fight back,” Browder said.
The more people act in a lawsuit, the stronger the case becomes. “It’s not a technical requirement to have signatories, but it helps a lawsuit that the court will hear it,” Mitts adds.
But just carving tens of thousands of signatures does not make it a strong case, according to legal experts.
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Class actions are most successful when the defendant is guilty. In a situation where it is not clear that Robinhood did something wrong, the plaintiff has a much more difficult case. ‘Even in highly punishable crimes like Bernie Madoff’s Ponzi scheme, people are happy when they recover their losses. … In this case, his buyer has to be careful, ‘says Mitts.
And Robinhood investors have been warned – they have willingly submitted to the platform’s terms of service, which means the brokerage is not in breach of contract, legal experts told FOX Business.
While investors are struggling to lose money, theories are spreading about whether large hedge funds have stopped behind Robinhood’s transactions. Barstool Sports founder David Portnoy posted extensively on Twitter, pointing out that hedge funds, including Citadel Securities, which fills much of Robinhood’s order flow, are putting pressure on smaller brokers to stop trading in Gamestop and AMC to protect their interests. to serve. Point 72 particularly invested in Melvin Capital which lost billions due to the short pressure of GameStop shares.
However, both funds quickly refute the theory that they make money by handling transactions and that it was ultimately Robinhood’s call to pull the plug – a step Robinhood took to limit its liability as it was a struggle. has with capital requirements that regulate the amount of transactions. it can establish.
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“What we do not know is what their internal reporting mechanism told them, and how ‘in real time’ their internal system kept pace with the increase in trading volume,” says Anderson. Anderson adds that we do not know all the problems Robinhood has did not deal with behind the scenes yesterday: “Since Robinhood has gotten into trouble with the SEC before, they’re trying to be extremely careful.”
Discover that more information will emerge as lawyers see if Robinhood could have done more by using credit lines sooner to enable clients to trade. But for now, most theories are just that: theories.
It’s hard to say that Robinhood – and not a usury market – owes money to people who lose money. Robinhood’s restriction on trading yesterday morning prevented investors from buying additional shares of the most volatile shares such as GameStop, but did not prevent users from selling their shares.
“From my understanding, Robinhood has never stopped clients from closing existing positions,” Anderson adds.
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While these group lawsuits are not expected to be a payday, they can refocus the conversation on the difference between the resources that rich hedge funds have and the resources available to average investors. “Being excluded at the exact moment when you can recover losses is very insulting to the notions of fairness and equity,” Mitts told FOX Business. “Hedge funds with prime brokers can change their position whenever they want, so there is a demand for differential and diverse treatment.”
Some who are working on the matter remain optimistic that they may get a favorable outcome. Browder tells FOX Business: “This is a new era of consumers working together.”