Robinhood clients build class action over trading outages
A group of Robinhood customers is allegedly seeking certification for a class-action lawsuit to sue the stock-buying app over multiple trading outages in the spring of 2020.
A recent report by Law360, a legal news service, states that the plaintiffs are actively building a case against Robinhood for their negligence. The proposed legal proceeding, in which one or several plaintiffs bring a lawsuit on behalf of a larger group, alleges the brokerage firm had a duty to provide a platform robust enough to handle their trading volume and have a backup system to handle outages.
However, Robinhood allegedly breached its contracts and fiduciary obligations to customers, flouted regulatory requirements and acted in a reckless, profit-driven manner. This had left traders unable to move money while stock markets surged on March 2, 2020.
Technical issues marred the commission-free investing app on many occasions last year, unnerving investors trying to access their accounts during the market rally.
At the time, Robinhood had customers with more than 10 million accounts, and a fair number of them were frustrated trying to figure out how they fared during a bullish trading session. Clients have complained about not having access to their accounts and having long wait times for customer service.
Historically, plaintiffs seeking monetary damages and wishing to pursue their case as a class action have sought certification, but this has become increasingly difficult.
A surge in retail investing drove millions to the Robinhood platform, having added more than six million accounts to its cryptocurrency service alone this year. Overall, Robinhood reported 21.3 million cumulative funded accounts and active monthly users in the second quarter, up from 18 million users the company claimed in the first quarter.
Robinhood was one of the most anticipated IPOs of the year even as the upstart brokerage firm faces regulatory scrutiny on multiple fronts. Most recently, its billionaire co-founders, Vladimir Tenev and Baiju Bhatt, came under the regulators’ hammer as they are not licensed by the Financial Industry Regulatory Authority (FINRA).
In a filing with the Securities and Exchange Commission, the no-fee app also revealed that the SEC alongside FINRA are also probing its service outages, and separately, the suicide of an amateur options trader.
The investigation, which audited Robinhood’s poor communications with its customers, has resulted in a settlement agreement to resolve claims for “wrongful death, negligent infliction of emotional distress and unfair business practices.”