GameStop shares are back on their rocket, after millennial trading app Robinhood decided it would, after all, let its customers ride the stock all the way to the moon or to a fiery crash. Alas, for Robinhood, it may already be too late.
“Brokers are now ‘protecting’ customers as a facade so that they can appease their institutional backers,” one individual trader told Bloomberg. “The entire community is outraged….”
An unlikely mix of lawmakers — including Representative Alexandria Ocasio-Cortez and Senator Ted Cruz — accused Robinhood of imposing trading limits to help out hedge funds caught out by the retail trading frenzy. The heads of the Senate Banking Committee and the House Financial Services Committee called for hearings.
The SEC issued a rare joint statement from its acting chair and commissioners that said it was working closely with other regulators and stock exchanges “to protect investors and to identify and pursue potential wrongdoing” and would “closely review actions ... that may disadvantage investors” or hinder their ability to trade stocks…. Texas Attorney General Ken Paxton issued 13 civil investigative demands, the civil equivalent of a subpoena, on Friday to Robinhood and others that put curbs on stock trading, calling it “shockingly unprecedented and wrong.”
“Robinhood? Nah y’all ROBBING the HOOD,” tweeted one user. “Crazy how you guys would rather watch your company burn to the ground than live up to your promise to provide users with free trade,” commented another.
Twitter users also complained that Robinhood appeared to be selling their shares without authorization….
A Robinhood customer filed a class-action lawsuit against the stock-trading app Thursday after the company barred traders from buying shares of GameStop promoted by WallStreetBets, a popular Reddit group for investors…. "Robinhood's actions were done purposefully and knowingly to manipulate the market for the benefit of people and financial institutions who were not Robinhood's customers," the lawsuit states….
Following Robinhood's decision earlier Thursday morning, Redditors stood up a new forum, r/ClassActionRobinHood, to coordinate efforts for a lawsuit. It collected more than 31,000 users Thursday.
One law firm that Redditors have engaged with is ChapmanAlbin LLC, based in Cleveland, Ohio, which specializes in investments and financial fraud. The firm's homepage currently has a prompt titled, "Are you a Robinhood user who has suffered losses?" along with a way for people to submit information.
The firm has collected information from more than 6,000 people as it investigates Robinhood, attorney Philip Vujanov told CNN.
The decades-old Public Access to Court Electronic Records (PACER) system buckled under extreme pressure on Thursday as thousands of end users frantically attempted to download lawsuits filed against online stock trading application Robinhood.
Customers flooded Google’s Play Store with angry, one-star reviews about the restrictions, tanking its average rating to 1 star out of 5.
Oof. Given the level of anger towards both Robinhood and the hedge funds its users apparently believe it’s protecting, it doesn’t seem likely that its “we had no choice” argument will carry much sway, however much evidence it has for its veracity.
In its update on Thursday afternoon, Robinhood defended itself against accusations of favoring big traders, saying it had made the decision to limit trades because of “financial requirements, including SEC net capital obligations and clearinghouse deposits.”
“To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to,” the company said.
“We understand our customers are upset, we’re doing what we can to re-enable buying in these names,” [CEO Vlad Tenev] said. “We want to be clear in the communications, and I own that we should have been out there a little bit sooner.”
“It’s not really Robinhood doing nefarious stuff,” said Bloomberg Intelligence analyst Larry Tabb. “It’s the DTCC saying ‘This stuff is just too risky. We don’t trust that these guys have the cash to be able to withstand settling these things two days from now, because in two days, who knows what the price could be, it could be zero.’”
Robinhood, the online trading app, said on Thursday that it was raising an infusion of more than $1 billion from its existing investors…. To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.
Robinhood still needed more cash quickly to ensure that it didn’t have to place further limits on customer trading, said two people briefed on the situation, who asked to remain anonymous because the negotiations were confidential.
Robinhood, which is privately held, contacted several of its investors, including the venture capital firms Sequoia Capital and Ribbit Capital, which came together on Thursday night to offer the emergency funding, five people involved in the negotiations said.
Brokers that route investors’ orders to Susquehanna International Group LLP and Wolverine Trading LLC had difficulty connecting to the firms on Wednesday and routed their trades elsewhere, people familiar with the matter said…. Two Sigma Securities LLC, which also fills orders for individual investors, faced technical difficulties because of the heavy load, a person familiar with the matter said…. Online brokerages themselves have struggled to keep up with the flood of trading activity. In recent days, clients of Fidelity, E*Trade Financial Corp., Charles Schwab Corp. and Vanguard Group have experienced various levels of service disruptions.
“Citadel is not involved in, or responsible for, any retail brokers’ decision to stop trading in any way,” a spokesperson for the hedge fund said in a statement.
“Citadel Securities has not instructed or otherwise caused any brokerage firm to stop, suspend, or limit trading or otherwise refuse to do business,” the statement added. “Citadel Securities remains focused on continuously providing liquidity to our clients across all market conditions.”
GameStop rallies back as U.S. regulators eye wild trading [Reuters]
Robinhood Says it Will Reallow GameStop Trades [NYT]
Why Robinhood Had to Risk Infuriating Its Customers [DealBook]
Robinhood, in Need of Cash, Raises $1 Billion From Its Investors [NYT]
Robinhood Fallout Sweeps Market After $1 Billion Lifeline [Bloomberg]
Robinhood is new eye of GameStop storm as outrage grows [Reuters]
Class-action lawsuit filed against Robinhood following outrage over GameStop stock restriction [CNN Business]
PACER Crashed Because Too Many People Tried to Read Lawsuits Against Robinhood [Law & Crime]
Citadel shoots down Robinhood link [Fox Business]
GameStop Frenzy Causes Glitches for High-Speed Traders [WSJ]