Customers take E*TRADE to Court over platform outage during crude oil futures market crash

Maria Nikolova

The plaintiffs allege that E*TRADE’s system was unprepared for the negative pricing, failed to display accurate prices, and locked out users attempting to enter orders with negative values on April 20, 2020.

A lawsuit against E*TRADE Securities, LLC and E*TRADE Futures, LLC was launched earlier this week at the California Northern District Court. The plaintiffs are customers of the brokerage – Benjamin Whitesides, Aziz Si Hadj Mohand, and Matthew Cheung.

Their claims against E*TRADE stem from the crash that occurred in the crude oil futures markets on April 20, 2020. The plaintiffs allege that prior to the COVID-19 pandemic, the idea that oil futures could move into negative pricing territory was a known possibility. On April 20, however, that possibility turned into a reality.

The benchmark West Texas Intermediate (“WTI”) crude oil futures settled at negative ($37.63) by the close of the market on April 20 for the May contracts that were set to expire the following day. E-mini futures followed the slide of the regular futures. These, according to the plaintiffs, trapped traders who, due to the limitations of E*TRADE’s electronic trading system, were unable to a) see accurate information pricing information and b) trade at negative prices.

According to the complaint, simultaneous with the oil market’s precipitous decline into negative territory, E*TRADE’s system was unprepared for the negative pricing, failed to display accurate prices, and locked out users attempting to enter orders with negative values, resulting in an outage of its trading platform through the end of the session on April 20, 2020. Due the outage, E*TRADE’s customers were unable to exercise futures contracts on WTI through E*TRADE’s website, app, or call center.

Customers were also unable during this time to obtain accurate information or meaningful support from E*TRADE’s customer service specific to their individual investment needs, the complaint says.

According to the plaintiffs, E*TRADE failed to adequately or properly equip itself technologically and systemically to maintain the plaintiffs and class members’ access to trading services.

“Due solely to its own negligence and failure to maintain an adequate infrastructure, E*TRADE breached obligations owed to Plaintiffs and class members and caused them substantial losses”, the plaintiffs assert.

Despite possessing knowledge of the possibility of oil futures trading negatively for weeks, E*TRADE failed to test its online trading platform for this possibility, failed to ready its systems and correct known deficiencies, failed to disclose this possibility to its customers, and openly ignored multiple red flags from the relevant exchanges, the plaintiffs claim.

Plaintiffs thus bring this class action on behalf of themselves and all other E*TRADE customers within the United States who held futures contracts expiring during the outage, and who thereby suffered losses in their E*TRADE accounts. Plaintiffs assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, gross negligence, and violation of California consumer protection laws and seeks damages, restitution, and injunctive relief.

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