At the risk of stating the painfully obvious, if something sounds too good to be true, it probably is. The latest evidence supporting that timeless gem is Robinhood’s promise of free stock trading available to anyone. It sounds great, except when Robinhood’s trading platform goes offline, leaving tens of millions of clients unable to buy, sell, or access their funds.
Robinhood Service Outages
When the Robinhood went down in early March 2020, it left million account holders unable to trade. Worse yet, there were no human beings with whom angry customers could speak to try to get more information and emails went unanswered.
On June 30, 2021, it was announced that the Financial Industry Regulatory Authority (“FINRA”) – the regulator charged with overseeing the brokerage industry – levied nearly $70 million in sanctions against Robinhood for a variety of problems, including its instability and tendency to lock clients out of their accounts.
While Robinhood agreed to pay the penalty, and $12.6 million is to be paid as compensation for harmed investors, it is unlikely that any individuals who were locked out will see any of that money.
Our office received dozens of calls in March of last year with complaints about the platform. We continue to receive calls almost any time the platform is unavailable and investors are prevented from buying or selling their securities.
The complaints are almost identical “I would have bought X, but I couldn’t. The stock is up 50% and I missed out!”
We also hear the flip side: “I wanted to sell Y
, but couldn’t. It’s now trading for half of what I could have gotten had I been able to sell it.” To date, we’ve declined every single one of those potential client claims. Why?
Documentation Is Key If You Want To Bring A Claim
Claims against Robinhood, like any other brokerage firm, are heard in FINRA-sponsored arbitrations. The arbitrators assigned to decide the cases act like judges and juries. As such, they want evidence that will support an investor’s claim.
A simple claim that “I would have bought X at $3.50 and it’s now at $5.00” isn’t enough to convince the arbitrator that the investor was wrongfully deprived of an opportunity. Simply put, it’s too easy to look back in hindsight and pick a stock that would have jumped had you had a chance to buy it but for Robinhood being down that day.
The only meaningful chance an investor has to win a claim is to present evidence of what they were trying to buy, in what amount, at what time, and at what price. How would one do that? The best evidence would be an email to Robinhood’s customer service department that says something like: “I tried to buy 300 shares of Company X at 3:15 PM today at $14.75/share, but I couldn’t because your platform is down.”
If the email is sent at 3:16 PM, it serves as good evidence that you really were trying to buy the security. Presuming you had enough money (or access to margin) to complete the purchase, a contemporaneous, detailed email should demonstrate to a skeptical arbitrator that you really were deprived of the opportunity to buy or sell a particular security as you’ve claimed.
Damages Caused by Robinhood
What, then, are your damages? If you claim that you wanted to buy a security, but couldn’t because the platform was down, the arbitrator is most likely to award you the difference between what the security was at the time you were prevented from buying it and its price when Robinhood started working again.
If you were dying to buy Company Z at $10.00 per share, but couldn’t, and Company Z was priced at $11.00 per share when Robinhood started working again, it’s most likely the arbitrator would award you the $1 difference multiplied by the number of shares you were trying to buy.
That said, the arbitrator should (but might not) give you some reasonable period of time after Robinhood came back online, figuring you wouldn’t know the exact moment it did, so there’s no reasonable way you could use the app at that exact moment to buy the stock at $11/share. Accordingly, the price of the stock for the day or so following Robinhood’s return would be relevant in the damage calculation.
The permutations are seemingly endless. Robinhood allows customers to trade options, sell short, trade on margin, and trade a variety of publicly traded securities. An outage could affect an investor’s strategy for any of those. Regardless of the sort of security, you were locked out of trading, the one constant is the need to document to Robinhood (and the arbitrators) exactly what you were prevented from doing, and when.
If you have that evidence in hand, you have a reasonable claim to present to a FINRA arbitrator.
What To Do Next
If you lost thousands of dollars as a result of Robinhood’s technological problems, please feel free to call us for a free consultation. We’ll let you know what we think and whether we believe we can help you recover some or all of your losses. There’s no cost for that initial conversation. You’re welcome to use our contact form, or toll-free number – (866) 932 1295.Call Hugh Berkson today at 216-696-1422.
Hugh Berkson is a Securities Attorney with McCarthy, Lebit, Crystal & Liffman, Co. LPA. Hugh is rated AV® Preeminent™ by Martindale-Hubbell®.
He obtained a business degree in Finance from the University of Texas at Austin in 1989, and is a 1994 graduate of Case Western Reserve University School of Law, where he was a member of the Order of the Barristers and received both the American Jurisprudence Award, (National Mock Trial) in 1993 and the Jonathan M. Ault Mock Trial Prize for 1993-1994.