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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

#141

Post by foolmeonce »

boublepop wrote: post #140
mam2 wrote: post #137

Earlier quoted context omitted.

Rh will argue best financiary duty was to protect his customers from the volatility

And the question will be posed if making it an absolute certainty that your customers lose value is a justified action because it reduces volatility. And RH will have a tough time arguing. “Yes, yesterday you had 2mil but you didn’t know if it would double or halve. Today you know for sure that you have 100k, so why aren’t you happy? I’m just looking out for your best interests!”

They let their customers sell which was probably a fiduciary responsibility.

An obligation to maintain the market for a stock because a portion of it's owners are your customers would be a bizarre responsibility.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#142

Post by klmadfejno »

nrmitchi wrote: post #128
klmadfejno wrote: post #120

Earlier quoted context omitted.

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…

No? You're not complicit with fraud if you suspect someone of fraud but don't go public with your suspicions. I don't think that's up for debate at all tbh.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#143

Post by ceejayoz »

user-the-name wrote: post #139
ceejayoz wrote: post #65

Earlier quoted context omitted.

That's not long ago, and it's after the practice was banned. You think the banking industry has had an ethical epiphany and sudden love for regulations in the last decade?

What I think is that if you are going to make a very specific claim that fraud has occurred, you should back that up with some evidence that is similarly specific, not with a "well it could happen, it happened once before nine years ago!"

The "Regulatory enforcement actions" section lists a number of cases that "require[d] a licensed broker to break the law".

It's quite clear naked short selling is possible and thus happens sometimes. I'm very dubious it's the case in Gamestop's specific situation. My specific claim is "naked short selling is a thing that exists", which is readily provable.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#144

Post by Dma54rhs »

SilasX wrote: post #110
gitdown42 wrote: post #41

Earlier quoted context omitted.

Robinhood deserves negative attention, but not for restricting trades to closing-ony. That appears to not have been much of a choice. They do deserve a lot of negative attention for running a brokerage in a way that invited a lot of risk-ignorant retail traders to instantly trade into leveraged positions for which they should never have been qualified in the first place. Robinhood has the valuation it does because it…

I don't think the inviting was where it went wrong, but in having a criminally bad UX that deceives those same naive users. Like executing your purchase as a margin buy without making clear it is a margin buy that can be sold out from under you: https://news.ycombinator.com/item?id=25962906 Or the suicide from the kid who didn't understand his position wasn't actually extremely negative.

The unfortunate story with the kid was RH showing him (temporary) correct information. In any case it always comes back to argument if general public is suitable to participate in the market which in turn brings in more legislation to keep retail market far away from Wall Street.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#145

Post by Sohcahtoa82 »

unethical_ban wrote: post #68
gitdown42 wrote: post #41

Earlier quoted context omitted.

Robinhood deserves negative attention, but not for restricting trades to closing-ony. That appears to not have been much of a choice. They do deserve a lot of negative attention for running a brokerage in a way that invited a lot of risk-ignorant retail traders to instantly trade into leveraged positions for which they should never have been qualified in the first place. Robinhood has the valuation it does because it…

I'm not a big fan of "RH should protect people more" They clearly did not have the finances available to provide the service they offer. Regardless of whether that was forced on them, the outcome was RH's failures manipulating a market. RH should be fined and sued out of existence. I also don't see the value in short selling. Seems like a way to gamble legally in all 50 states.

Short-selling is a way to profit off of a company's fall. It sounds morally wrong, but it also allows someone to put their money where their mouth is and gamble on a company's loss, with the risk being that they lose money if the company ends up succeeding.

Of course, it creates a perverse incentive. A short-seller who is invested in a company's failure will spew tons of FUD around the company, whether it's true or not. TSLA used to be one of the most shorted companies on the market, and many bloggers that were highly critical of Tesla were short-sellers, and the noise it created made it difficult to figure out how bad the problems were.

> Seems like a way to gamble legally in all 50 states.

You could say the exact same about long positions, which is nothing more than gambling on the success of a company, the same way a short is a gamble on the failure.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#146

Post by carapeco »

MperorM wrote: post #138
mdoms wrote: post #119

Earlier quoted context omitted.

Just so you know, outside of your bizarro-world America-brain, the world was well aware that Covid-19 "was going to be a big problem" without the help of your stock market games.

I'm Danish and live in Denmark. Please keep your next bigoted comment to yourself, they don't belong on this forum.

I don't see how the comment was bigoted, but please don't derail the discussion

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#147

Post by rualca »

mam2 wrote: post #137
Kranar wrote: post #122

Earlier quoted context omitted.

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 becau…

Rh will argue best financiary duty was to protect his customers from the volatility

> Rh will argue best financiary duty was to protect his customers from the volatility

Wouldn't that line of argument determine that traders would have the fiduciary duty to only allow their clients to sell on price hikes and buy on price drops?

Because otherwise that line of reasoning is highly arbitrary in the sense of what RobinHood claims is in the best interests of his customer, and thus very unlike anything regarding fiduciary responsibility.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#148

Post by rualca »

foolmeonce wrote: post #141
boublepop wrote: post #140

Earlier quoted context omitted.

And the question will be posed if making it an absolute certainty that your customers lose value is a justified action because it reduces volatility. And RH will have a tough time arguing. “Yes, yesterday you had 2mil but you didn’t know if it would double or halve. Today you know for sure that you have 100k, so why aren’t you happy? I’m just looking out for your best interests!”

They let their customers sell which was probably a fiduciary responsibility. An obligation to maintain the market for a stock because a portion of it's owners are your customers would be a bizarre responsibility.

> They let their customers sell which was probably a fiduciary responsibility.

Given the context of gamestop's stock, only allowing to sell stocks is the exact opposite of protecting the customer's best interests.

I mean, the high demand for gamestop's stock was motivated by the rally behind a retail-backed short squeeze, where hedge funds were reported to have massively shorted gamestop's stocks. Barring customers from buying more gamestop stocks meant they were unable to strengthen their positions and thus profit from the short squeeze,and pushing them to sell represented a pressure to kill off the short squeeze, thus acting on the exact opposite of their customer's best interests.

Then there's the reported news that one of RobinHood's new backers ends up being one of the hedge funds that stood to loose massively due to this retail-backed short squeeze.

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#149

Post by erik_seaberg »

minsc__and__boo wrote: post #96
CydeWeys wrote: post #93

Earlier quoted context omitted.

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).

I’ve seen claims that having settled funds doesn’t matter, that the brokerage must keep collateral at the clearinghouse and they cannot use customer’s money to do it: https://news.ycombinator.com/item?id=25981493. The clearinghouse suddenly demanded a lot more collateral for that stock (because its eventual value is so uncertain) and a lot of brokers couldn’t or didn’t want to meet it.

They also didn’t want to say anything that might give an impression of being insolvent (especially when it isn’t true).

Re: Robinhood is facing nearly 50 lawsuits over GameStop frenzy

#150

Post by CydeWeys »

klmadfejno wrote: post #142
nrmitchi wrote: post #128

Earlier quoted context omitted.

> 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…

No? You're not complicit with fraud if you suspect someone of fraud but don't go public with your suspicions. I don't think that's up for debate at all tbh.

Huh? You think there's a duty to publicly call out mere suspicions of fraud? I would argue there's the opposite -- people are hesitant to go public with any accusations because of the very real threat of being sued for defamation/libel.

There are very few true obligations to report in the US. All I'm aware of are tied to specific occupations/licenses.

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