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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

#121

Post by gruez »

nextaccountic wrote: post #112
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…

> That really only leaves two kinds of claims that might have legs: arguing that Robinhood violated securities laws, and arguing conspiracy on the part of hedge funds. The first part is difficult to win on because many of the complainants will simply lack the standing to do so (you have to have owned the stocks in question and bought/sold at a manipulated price to show standing, and since the complaints are generally…

>Someone that owned GME shares could argue that by restricting buying but not selling shares, Robinhood was acting to lower the value of this asset. They might argue that in this situation the only fair thing to do is to restrict buying and selling altogether.

Whether that's fair is debatable. If you held GME shares and wanted to get out, but couldn't because robinhood restricted sells for no reason (ie. they couldn't execute buys because they couldn't put up the collateral, but they can still process sells because they don't need collateral for that), that can also be construed as unfair.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#122

Post by Kranar »

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…

Contracts do not override a broker's fiduciary duty to its clients. A fiduciary duty is the highest standard of care recognized by law and requires the agent to act in the best interest of the principal.

Once the evidence is presented, a plaintiff may find that Robinhood did not act with the highest standard of care, did not do everything it could have done to prepare for and handle the situation.

We don't know because the evidence hasn't been disclosed, a major part of any lawsuit is to give plaintiffs an opportunity to assess the evidence produced by the defendant to determine if any wrongdoing took place.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#123

Post by unethical_ban »

mlrtime wrote: post #106
pwnguin wrote: post #77

Earlier quoted context omitted.

Short selling is absurdly risky, but selling put options should probably remain allowed.

Probably? Selling short a put is long the stock. I'm glad we aren't creating SEC rules based off of peoples' feelings.

Sure, I'm not lobbying the law to be changed on my feelings, but someone able to risk _infinity_ money in the hopes of a company's value decreasing does "feel" dangerous and wrong.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#124

Post by nrmitchi »

nextaccountic wrote: post #112
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…

> That really only leaves two kinds of claims that might have legs: arguing that Robinhood violated securities laws, and arguing conspiracy on the part of hedge funds. The first part is difficult to win on because many of the complainants will simply lack the standing to do so (you have to have owned the stocks in question and bought/sold at a manipulated price to show standing, and since the complaints are generally…

> restrict buying and selling altogether

Robinhood is a brokerage, they are not the entire stock market.

Robinhood has 0 ability to prevent people from selling GME in the market at large.

It kind of feels like some people don't understand that Robinhood is only a gateway into a much larger system, and is fundamentally different than an "app/game" that controls the entire system on it's own servers.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#125

Post by totalZero »

VoodooJuJu wrote: post #11

I'm pretty skeptical of the negative attention Robinhood is receiving. It seems like the entities who actually acted in bad faith, the ones who attempted illegal shorts, are trying to divert attention. Like someone else said, Robinhood is just the fall guy here.

The hedge fund shorts were irresponsible but I don't think there exists any credible argument that they were illegal.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#126

Post by nrmitchi »

CydeWeys wrote: post #88
diehunde wrote: post #84

Earlier quoted context omitted.

What they did wrong was not having the resources to handle that volatile environment. I know other companies also halted trading, but many didn't. They are bitting off more than they can chew.

Is that illegal though? I don't think so. And also, they were offering customers a courtesy to use unsettled funds to buy stocks immediately, rather than waiting two business days for funds to clear. Most customers generally appreciate this feature (I certainly do!). The only thing I'd say they did wrong (but not illegally so) was not having finer-grained controls ready to go to be able to shut down purchases of shar…

In this situation, I don't think that the distinction between settled and unsettled funds would have mattered.

Robinhood was still responsible for the clearinghouse-mandated deposit requirements, whether the purchase was from settled or unsettled funds.

My understanding is that the deposit funds, and the funds-fronted-on-margin, are two different groups of money.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#127

Post by CydeWeys »

nrmitchi wrote: post #126
CydeWeys wrote: post #88

Earlier quoted context omitted.

Is that illegal though? I don't think so. And also, they were offering customers a courtesy to use unsettled funds to buy stocks immediately, rather than waiting two business days for funds to clear. Most customers generally appreciate this feature (I certainly do!). The only thing I'd say they did wrong (but not illegally so) was not having finer-grained controls ready to go to be able to shut down purchases of shar…

In this situation, I don't think that the distinction between settled and unsettled funds would have mattered. Robinhood was still responsible for the clearinghouse-mandated deposit requirements, whether the purchase was from settled or unsettled funds. My understanding is that the deposit funds, and the funds-fronted-on-margin, are two different groups of money.

But the point is that they can meet the deposit requirements on settled customer funds easily with those funds themselves, since those funds are actually settled. But on unsettled customer funds, they have to come up with their own money to bridge the gap until the customer funds settle.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#128

Post by nrmitchi »

klmadfejno wrote: post #120
fractionalhare wrote: post #111

Earlier quoted context omitted.

How does shorting destroy a company destroy it?

It could open a company to a hostile takeover, or cripple them if they were reliant on a realistic share price to raise necessary capital. Shorting a company itself isn't so bad. Orchestrating bad PR to boost your short option earnings is bad.

> Orchestrating bad PR to boost your short option earnings is bad.

So legit question, lets flip this around. Lets pretend that I am super confident, and have strong evidence to believe, that company $ABC, currently trading at $100/share, has been committing fraud and is drastically over-valued because of it. Lets say, I don't know, it was intentionally skipping numbers during the day to give the appearance of higher volume[0]. I've determined this by investing a bunch of resources in research to determine that reported numbers don't line up with the actual number of customers, or don't line up with other available data from other sources.

So I take a short position. But I'm not allowed to say anything about it. I keep silent.

Now 3 years later, the fraud is uncovered elsewhere, I make a killing, and my only response is "Ya, I knew they were fraudulent years ago, and here is all of my proof. But I didn't say anything for 3 years."

Would you argue that I'm not complicit in that fraud for all the years I knew about it?

[0] https://www.bloomberg.com/news/features/2020-07-29/luckin-co...

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#129

Post by nrmitchi »

CydeWeys wrote: post #127
nrmitchi wrote: post #126

Earlier quoted context omitted.

In this situation, I don't think that the distinction between settled and unsettled funds would have mattered. Robinhood was still responsible for the clearinghouse-mandated deposit requirements, whether the purchase was from settled or unsettled funds. My understanding is that the deposit funds, and the funds-fronted-on-margin, are two different groups of money.

But the point is that they can meet the deposit requirements on settled customer funds easily with those funds themselves, since those funds are actually settled. But on unsettled customer funds, they have to come up with their own money to bridge the gap until the customer funds settle.

No, they can't. They can't use customer funds for DTCC deposit requirements. It's just not allowed.

IIRC the deposit requirement was raised to 100%.

Even if the customer funds were settled, and the customer wanted to buy 1 share of GME for $300, Robinhood would have to post $300 of it's own money, just in case. Now would Robinhood get that money back? Most likely, but that doesn't mean they don't have to have it to deposit in the first place.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#130

Post by drone »

TameAntelope wrote: post #103
dlgeek wrote: post #83

Earlier quoted context omitted.

That's not a Robinhood thing, that's based on the investments you had in it. A lot of those have a March 1st or March 15th deadline (depending on type) to get their tax reporting done and reported back, and your broker is blocked on finalizing their forms until they finish those.

Another great example of Robinhood getting blamed for things it can’t control. Being the retail face of a complex industry apparently results in you getting blamed for the complexity.

One might argue that the original sin of RH is marketing to people who don't have a grasp of how these systems work and not being used to having to learn these things when dealing with a consumer product.

Some of the barriers to dealing with traditional brokerages created opportunities to learn, and to put one's self into the mindset that this is a thing that is new and complex (on your first encounter), and your general approach should be researching each new thing you're trying. Heck, just the signup and annual reporting requirements on IB will make you think long and hard about each type of transaction you might want to do.

I can get behind making a business out of it, but I wonder what the long-term effects of trying to gamify and consumerify stock trading is going to have on laws, regulations, and the overall market conditions going forward. (I know what RH would say, they're "levelling the playing field for the average Joe!" But, you know, Fidelity & co. did that a long time ago - they just didn't gamify it, they gave you access to it largely as it was.)

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