Class Action Lawsuit Filed Against Robinhood in the State of New York | Hacker News Reader

Class Action Lawsuit Filed Against Robinhood in the State of New York

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144 pointsjbegley32 comments

I wonder if the class action will broaden against all the brokers who took this same action instead of just Robinhood (~~I read others mention Interactive Brokers, TD Ameritrade, Charles Schwabb, Trade212 (thank you 'Avalaxy), and others, but I have no sources to point to myself~~ 'johnbrodie said that TDA and other blocked buying on margin). In that scenario, the plaintiffs and defendants could definitely simply interpreted by normal people to be something like “People of the United States vs. Wall Street”. Both mainstream and alternative/niche media would have a field day over this story.

Is it really worth billions of dollars to further destroy the wavering belief that Americans still have about the American dream? How can you have any semblance of unity without evidence and/or faith that the powers that be in business and government will allow the ordinary person to have a realistic path towards tangible and meaningful prosperity?

Posted this in another thread, but TDA and other blocked buying on margin, not buying with your own money. Completely different IMO. Source: Their own statements and buying GME this morning on TDA without issue.

Thank you 'johnbrodie. I updated my message.

Trading212 also halted buying GME/AMC.

Thank you 'Avalaxy.

I have barely any knowledge when it comes to the stock market. But what Robinhood did here at least sounds highly illegal already to me.

Question: Is there any way Robinhood could phrase this decision that makes it OK to selectively prevent their users from buying certain stocks during an arbitrary time period?

Not trying to defend Robinhood here, but it would probably go like this: Robinhood is a private service and potentially has liability from what it enables users to do. They are under no obligation to provide trades on specific stocks, and if users want to trade that specific stock then they are free to use a different service. Users can sell/trade their assets out of the Robinhood service if they are unhappy with the current state of affairs.

Of course, the users are free to file any lawsuits they wish. Saying "the game is rigged and its unfair" isn't exactly a legal argument, though.

I'm curious what relevance Section 230 has here. That is, would Robinhood (and Reddit) be concerned that allowing users to execute a market manipulation attempt expose the platform to legal trouble, or are they protected by Section 230 (up to the point where the SEC asks them to do something specifically)?

This feels like another example of, "Their house, their rules." You don't have to use Robinhood to trade on the NYSE, so the question becomes, "Couldn't these users execute these trades elsewhere?"

There is a timing issue at play too, even if that's true. Say you wanted to migrate off elsewhere - it could take days for funds to settle between selling -> buying on another brokerage. By that time they possibly could have covered the shorts.

>Couldn't these users execute these trades elsewhere

Not really, it takes days to withdraw money.

Reddit is almost certainly covered by 230 in this instance. RH is a tougher question, but I'd argue they are probably fine. If either has liability (particularly RH) it will be under other laws or rules.

I am not a U.S. person, but isn't/shouldn't there be a set of rules for the provider of a brokerage account. Sure, its their house, their rules, but how can they change the rules overnight? If what Robinhood did isn't illegal, then I suppose I had the wrong impression about the strength of financial regulations in the U.S. (If this happened in my home country, I would never participate in the markets again.)

I think what we're finding out now is that this happened as a result of the strength of financial regulations/safety systems in place in the US markets.

Volatility increases risk, and higher risk requires higher levels of safety to operate properly, and Robinhood couldn't provide the higher level of safety, so they were given no choice by the people who actually execute their trades.

In the coming days, more information will add context that, I expect, will make the populist outrage look foolish/uninformed. In many ways, we're already there.

Presumably? They are not a socialistic public good, they are a capitalistic company whose goal is to make themselves profit. It is not their job to make you money. Capitalism works because trade is not a zero sum game, so it is normally possible that everyone profits. Here we seem to have hit the normal edge case where one company may refuse to participate if they would not profit (including the loss to their reputation and the future earnings potential it buys, etc). Unless someone does profit directly from the information, as I think that sounds dangerously close to being insider trading.

Anyways, the situation sounds a lot like Bitcoin to me, from what I hear about the delays and costs of using the exchanges on that platform. And that has not yet been made illegal.

Robinhood may be between a rock and a hard place if the SCC finds that the discussions on Reddit constituted a conspiracy to manipulate the market, primarily using Robinhood, that Robinhood must have been aware of.

Robinhood probably is also trying to protect most of its users from being the last ones holding the hot potato. Robinhood has very little incentive to conspire with hedge funds, but every reason to protect their users form themselves, if they think many of their users are taking on risks that will likely hinder their ability and/or willingness to use Robinhood in the future.

This should not be construed as investment advice for or against GME at its current price.

> Robinhood probably is also trying to protect most of its users from being the last ones holding the hot potato

This narrative is false. Robinhood users are executing a short squeeze on Melvin Capital, who have shorted the stock which gives them an obligation to buy the stock when their short expires at whatever price it exists at. They stock is also "over-shorted" (sorry I'm not wise in this domain), so they are literally obligated to buy at whatever price the stock is at.

The hot potato holders are those who have to cover their short position. Robinhood traders are not these users; no casual retail trader short stocks.

tl;dr Robinhood and others are participating in collusion and market manipulation to prevent Robinhood users from finishing a short squeeze which would extract billions from Melvin Capital, who have already received a multi-billion bailout on their ridiculous short position

I know what a short squeeze is. The problem is that you may have tons of people planning to exit right around the same time, and there may not be enough trading volume for them to get out at prices they're happy with.

The fear is that many Robinhood users may not realize that exiting their position may be much much harder than they expect. If the entire value proposition is that Melvin Capital is being squeezed, what happens to the price of GME the moment after Melvin Capital exits their position?

This should not be construed as investment advice in any way.

Not a lawyer -- I think those conversations would fall under free speech. A coordinated effort to buy shares, what's the problem? Are investors suppose to buy shares with blinds on and not talk to anyone? There are entire TV programs that are dedicated to talking about good/bad stocks to buy/sell.

> Robinhood probably is also trying to protect most of its users from being the last ones holding the hot potato.

But this could happen with literally any stock that crashes. RH doesn't protect their users in any way from losing money in the stock market so to try to claim they are simply doing this for users seems flimsy.

> But this could happen with literally any stock that crashes.

You're leaving the probability of a crash out of your analysis. If the value proposition of GME is based on the short squeeze (hypothetically speaking... I'm not saying it is or isn't), what happens when either all of the shorts capitulate, or the price reverses direction? You're likely to see liquidity dry up.

Don't pretend like GME is behaving just like all of the other stocks today. There are legitimate reasons for RH to be concerned about GME in ways that don't make sense for most other names.

For those who want to read the filing/follow along with the case but don't have access to PACER (which is where the docket link in the tweet leads), CourtListener's RECAP archive [0] has this case listed already [1], and a kind soul has already uploaded this particular filing [2]. Hopefully, as the case develops, people with PACER access will continue to buy and contribute the filings to RECAP.

[0] https://www.courtlistener.com/recap/ [1] https://www.courtlistener.com/docket/50143052/nelson-v-robin... [2] https://www.courtlistener.com/recap/gov.uscourts.nysd.553175...

What they did is the antithesis of their name. What a time to be alive.

They should rename to Robbin' 'Hood

Yesterday they were cherished, today they are tarnished. Good luck on that IPO, Robinhood.

What happens if you wanted to sell de-listed stocks you have in your portfolio? Who's responsible for the potential loss incurred by not being able to sell?

Is this part of the class action?

(I can't open the document, there's only a PACER login screen for me)

I think they are allowing you to sell, not buy

Even though robinhood is claiming to allow people to close their open positions, I have been trying for hours to close two options contracts and continue to get error messages saying that I "don't have enough buying power", which is insane since I am just trying to sell my already owned contracts! I was up over 300% earlier this morning when I wanted to sell, but now overall down ~15% in large part due to Robinhood's either incompetence, neglect, malice, or some combination of the three.

EDIT: By the off chance anyone from Robinhood is reading this, it would be great to get back to one of my multiple support emails or request for phone support. While I am understanding of the fact that Robinhood is probably being bombarded at the moment and I am sympathetic to whoever is handling the support line, this is a self inflected wound by Robinhood that has resulted in a lot of their customers losing money and now despising them.

Last month I began contacting them because of an error my bank made, which caused RH to lock my account for one month. RH kept demanding I "explain what happened" and wouldn't unlock my account for moving my money out. Exchanged about 3 emails with revolving support staff, all obviously canned responses, each taking about 2 (BUSINESS) days to get a reply.

Got fed up with this and told them I was going to small claims (fortunately it was less than $2,500) if they didn't get me my money by next day's end. Exchanged 3 or 4 more emails which *miraculously began flowing in about an hour apart and I was 'allowed' to withdraw my $.

Left Robinhood early this month after that. Fuck Robinhood.

Do I have this right?:

1. Robinhood's TOS explicitly gives them the right to do this. 2. Robinhood is free. 3. Any alleged harm could be mitigated by using another service.

And attorneys wonder why we're held in lower regard than used car salesman.

Market manipulation by a brokerage is illegal, regardless how much fine text you print.

TOS don't always hold up. Plaintiffs have successfully convinced juries that companies make their TOS so difficult to understand and lengthy that the average user cannot read/understand it.

Recently companies have also added language that allows them to change the TOS at any time, which is questionably legal.

The legal framework under which they operate - even if most of us prefer it didn't exist and instead were relegated to a provable fair platform - expressly forbids using the platform as a tool of manipulating a specific instrument. And the appearance is certainly that that's what they've done.

So presumably participants (widely defined) had already built that information into their decision making.

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