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Robinhood is facing nearly 50 lawsuits over GameStop frenzy

nytimes.com

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Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#91

Post by klmadfejno »

MperorM wrote: post #80
klmadfejno wrote: post #73

Earlier quoted context omitted.

It certainly opens up the door to malicious information asymmetries and pr campaigns.

Yeah that's right. I am somewhat torn on where to stand on this. On one hand I do see why we would want regulation against insider trading & pump and dumps, on the other hand I worry that regulation isn't preventing either, and society quickly would become inoculated if we legalized it. When I read Robin Hanson's paper on insider trading and prediction markets, I became much more uncertain about whether we should reg…

I'd rather we just enact capital gains taxes to lower the overall incentive of financial wizardry to begin with. Force prices of assets back to the value of their dividends. Make it painful to be a growth stock unless your case for valuable future dividends is really compelling.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#92

Post by notyourday »

nix0n wrote: post #87
dangerbird2 wrote: post #47

Earlier quoted context omitted.

To clarify, People incorrectly assumed that because the short interest to float percentage was over 100%, the hedge funds had to be naked shorting. This is not true at all: because of how short selling works, there can be more than one short sale tied to a single share. Seller A borrows a share, sells it to buyer B. Buyer B then leases the share to Seller C, who then short sells it. This is not a naked short, but a p…

> With the exception of market makers, this is illegal Do you mean, this is legal for market makers? Is there any other way that the number of shares being shorted, could be greater than the number of shares in existence?

> Do you mean, this is legal for market makers?

Yes, market makers are allowed to sell short without having a locate.

It should be noted that the market makers will attempt to zero out their total exposure by the end of the trading session.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#93

Post by CydeWeys »

kmlx wrote: post #13
vga805 wrote: post #4

Earlier quoted context omitted.

Multiple brokerages shut down buying due to the collateral requirements that were raised. Robinhood seems like the fall guy here, hopefully people start asking the right questions about the collateral and the manipulation there.

other brokerages simply put up the money. this meant that while huge swaths of the retail investors in the US (and parts of Europe) were not allowed to buy GME, other retail investors had no issues. to top it off, certain brokerages only allowed sell orders. this meant a huge imbalance in the market. i really don’t get how this is legal and why heads aren’t rolling. case in point: saxo bank let me trade GME without a…

No brokerage is under any obligation to use their own funds as collateral in order to allow you to trade using unsettled funds or margin on highly volatile securities. A brokerage could be left holding a huge bag here if they put up their own funds to allow someone to buy GME, then the incoming unsettled funds from the customer bounce, and now the brokerage is left holding shares of GME worth $100 or whatever and they've incurred a huge loss.

You are NOT entitled to trading with a brokerage's funds as if they were your own.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#94

Post by minsc__and__boo »

MH15 wrote: post #53

Currently Robinhood won't send me my tax forms from 2020. I have a trivial amount of money in the account but it's the only thing preventing me from filing taxes yet. Everything else has been ready since early March.

My SO and I pulled everything out of Robinhood two weeks ago in part because of this reason.

The other part was we think Robinhood would go insolvent if their users made a run on their money, and we wanted to get out before that ever happened.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#95

Post by CydeWeys »

klmadfejno wrote: post #89
CydeWeys wrote: post #86

Earlier quoted context omitted.

As does going long. Your classic pump-and-dump scheme has led to thousands of disinformation campaigns that don't require shorting at all.

On some level shorting is worse though. A pump and dump scheme hurts investors. A shorting scheme can hurt investors and destroy the company.

Shorting can also help investors in the market at large if it helps bring down companies that are obvious scams. Some short seller reports have pretty famously destroyed companies that were up to no good, preventing further harm to future investors and boosting confidence in the valuations of the rest of the market. If there's no money in doing all of those short seller reports, then people won't do them, and the market will have less information available to it in total, and more frauds will continue to go under the radar.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#96

Post by minsc__and__boo »

CydeWeys wrote: post #93
kmlx wrote: post #13

Earlier quoted context omitted.

other brokerages simply put up the money. this meant that while huge swaths of the retail investors in the US (and parts of Europe) were not allowed to buy GME, other retail investors had no issues. to top it off, certain brokerages only allowed sell orders. this meant a huge imbalance in the market. i really don’t get how this is legal and why heads aren’t rolling. case in point: saxo bank let me trade GME without a…

No brokerage is under any obligation to use their own funds as collateral in order to allow you to trade using unsettled funds or margin on highly volatile securities. A brokerage could be left holding a huge bag here if they put up their own funds to allow someone to buy GME, then the incoming unsettled funds from the customer bounce, and now the brokerage is left holding shares of GME worth $100 or whatever and the…

For margin trading, sure, but IIRC Robinhood halted all trading, even with your own money.

I think it has more to do with Robinhood giving away free trading, while the trades themselves have a non-zero variable cost to Robinhood. Since their revenue comes from selling insightful user trade data, a run on GME isn't insightful and had diminishing returns (my hypothesis anyways).

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#97

Post by klmadfejno »

CydeWeys wrote: post #95
klmadfejno wrote: post #89

Earlier quoted context omitted.

On some level shorting is worse though. A pump and dump scheme hurts investors. A shorting scheme can hurt investors and destroy the company.

Shorting can also help investors in the market at large if it helps bring down companies that are obvious scams. Some short seller reports have pretty famously destroyed companies that were up to no good, preventing further harm to future investors and boosting confidence in the valuations of the rest of the market. If there's no money in doing all of those short seller reports, then people won't do them, and the mar…

Like what

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#98

Post by rkagerer »

jcranmer wrote: post #67

I've read a couple of the lawsuits on courtlistener. From what I've read, these lawsuits are going to go absolutely nowhere. The biggest problem most of the lawsuits face is that there is a provision in the Terms of Service that basically says that Robinhood can prevent you from trading in any stock it wishes. Any complaint that amounts to "Robinhood violated its contract" is going to go down in flames as a result--i…

Have any claimants presented compelling arguments for the judge to throw out that contract provision?

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#99

Post by OJFord »

rob74 wrote: post #69
MperorM wrote: post #66

Earlier quoted context omitted.

why is shorting a company perverted? I would argue it's a great asset to society. Eg. those who shorted stock because they expected covid-19 to cause a market dip, sent a giant signal to the entire world that covid was going to be a big problem.

Nothing against shorting in principle, the OP and me were just referring to being able to "sell" more shares of a company than there are in existence...

That can only happen with naked shorting, which is (illegal and) not implied by >100% short interest.

Some of the short sales refer to the same shares; say there's one share in the company and it's (borrowed and) sold short thrice. The company's one share has been sold three times, but there haven't been sales of more shares than there are in the company - the three (short) sellers need to get that (same) one share back to close their position in sequence.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#100

Post by OJFord »

cwhiz wrote: post #32

I don’t really care what the rules are. Arbitrarily preventing people from buying, but not selling, is market manipulation. Any company that took part in this should be dismantled. If you need to halt trading because of liquidity requirements, halt all trading.

No, not allowing people to close open positions would be way more of a shit show, and way more likely to look bad (on the broker) in court.
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