Robinhood’s class-action costume surpassed like a dime

To hear Robinhood traders talk, there’s a new, easy way to make money with the Reddit-Robinhood Saga: Join a class action lawsuit against the platform that went out of business earlier this week.

But just like the actions of GameStop, the action that caused the problem in the first place as it climbed to $ 500 per action, the legal bet can be overrated.

Small investors in apps like Robinhood lost thousands of dollars on speculative stock picks as platforms like Robinhood, Cash App and Stash halted trading earlier this week. Day traders using the app to earn a few extra bucks panicked as the brokers they relied on refused to complete their trades.

FOX Business has received dozens of messages and queries from investors who have lost money and want to join the class action lawsuit.

While many are anxious to jump on the bandwagon and seek restitution, the likelihood of these cases actually paying people back is slim, legal experts told FOX Business. Columbia law professor Joshua Mitts advises, “I wouldn’t think you’re going to get your money back.”

TJM CEO Tim Anderson put it more bluntly: “I am convinced that class actions go absolutely nowhere.”

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Several class actions have been filed – including in the southern New York neighborhood. Lawsuits are gaining ground in various Reddit groups as many day traders shift their energy from trading to stick it to Robinhood.

Ironically, a group of crowdsourcing signatures, Do Not Pay, is called “The Robinhood of the Internet”. Do Not Pay, an online legal service that costs $ 3 per month, allows users to register for lawsuits in the Southern District of New York.

Do Not Pay CEO Josh Browder told FOX Business that more than 26,000 users have signed up for the class action lawsuit since they launched the feature on the site. “We want to give people options to fight back,” Browder said.

In a class action lawsuit, the more people claiming injuries, the stronger the case. “It’s not a technical requirement to have signatories, but it does increase the chances of a trial that the court will hear it,” Mitts adds.

But just ticking off tens of thousands of signatures doesn’t make that argument a solid argument, legal experts say.

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Class actions are more successful when the defendant is at fault. In a situation where it is not clear that Robinhood did anything wrong, the plaintiff has a much more difficult case. “Even in highly culpable crimes like Bernie Madoff’s Ponzi scheme, people are lucky if they recoup their losses. … In this case, his buyer is suspicious, ”says Mitts.

And Robinhood investors have been warned: They have voluntarily submitted to the platform’s terms of service, which means the brokerage has not broken a contract, legal experts told FOX Business.

As investors scramble to lose money, theories proliferate as to whether the big hedge funds were behind Robinhood to stop trading. Barstool Sports founder David Portnoy posted numerous articles on Twitter, suggesting that hedge funds, including Citadel Securities, which fill many Robinhood order flows, were pressuring the small brokerage to stops Gamestop and AMC’s transactions in order to serve their interests. Point 72 notably invested in Melvin Capital which lost billions in the GameStop short squeeze.

However, both funds quickly refute the theory that they make money by handling trades and that ultimately it was Robinhood’s call to pull the plug – a move Robinhood made to minimize its responsibility because it went against the capital requirements that regulate the number of transactions. it can settle down.

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“What we don’t know is what their internal reporting system was telling them, and how their internal real-time system was tracking the surge in trade volume,” Anderson says. Anderson adds that we don’t know all of the issues Robinhood may have dealt with behind the scenes yesterday: “Since Robinhood has had issues with the SEC before, they try to be extremely careful.”

In the discovery, more information will emerge as lawyers investigate whether Robinhood could have done more by tapping additional lines of credit earlier to allow clients to transact. But for now, most theories are just that: theories.

Arguing that Robinhood – not a rotating market is at fault for people losing money is a tough sell. Robinhood’s restriction on trading yesterday morning prevented investors from buying additional shares of more volatile stocks like GameStop, but did not stop users from selling their stocks.

“From what I understand, Robinhood has never stopped clients from closing existing positions,” adds Anderson.

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While these class actions aren’t meant to pay plaintiffs a salary, they could refocus the conversation on the disparity between the resources available to wealthy hedge funds and the resources available to average investors. “Being locked out at the exact moment when you can recoup losses is deeply offensive to notions of fairness and equity,” Mitts told FOX Business. “Hedge funds that have blue chip brokers can change positions at any time, so there is a question about differential and disparate treatment.”

Some working on the trial remain optimistic about the possibility of a favorable outcome. Browder told FOX Business, “It’s a new era of consumer consolidation.”