[HN Gopher] Robinhood is facing nearly 50 lawsuits over GameStop...
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Robinhood is facing nearly 50 lawsuits over GameStop frenzy
Author : pedro-guimaraes
Score : 188 points
Date : 2021-03-03 11:23 UTC (11 hours ago)
(HTM) web link (www.nytimes.com)
(TXT) w3m dump (www.nytimes.com)
| say_it_as_it_is wrote:
| .. and almost ten ongoing movie, television and documentary
| projects about the GameStop fiasco
| victords wrote:
| Why fiasco?
| MH15 wrote:
| Currently Robinhood won't send me my tax forms from 2020. I have
| a trivial amount of money in the account but it's the only thing
| preventing me from filing taxes yet. Everything else has been
| ready since early March.
| ry4nolson wrote:
| did you check under your Account->Documents? They posted my
| 1099 mid-February.
| CydeWeys wrote:
| I've had this problem going back two decades now with a variety
| of brokerages. The final deadline for all the forms to get out
| is March 15th, so generally I don't even bother doing taxes
| until early April.
|
| What's even worse is not what Robinhood is doing, but what
| other brokerages are doing, which is that they trick you by
| sending out provisional 1099s in January or February even
| though the companies/funds whose stock you own aren't finalized
| yet, you file your taxes, and then you get an amended 1099 in
| March that requires you to file an amended state and federal
| tax return at extra hassle and extra cost.
|
| For the 90 day span of January through March I just collect all
| the tax forms in a drawer, and then in April I get them all out
| and do taxes. You don't have all the information in before
| then, not if you trade stocks anyway. If you only have W2
| income, then you can file earlier, as the deadline for that is
| much earlier.
| mtrovo wrote:
| So ready for only 2 days?
| dlgeek wrote:
| That's not a Robinhood thing, that's based on the investments
| you had in it. A lot of those have a March 1st or March 15th
| deadline (depending on type) to get their tax reporting done
| and reported back, and your broker is blocked on finalizing
| their forms until they finish those.
| TameAntelope wrote:
| Another great example of Robinhood getting blamed for things
| it can't control.
|
| Being the retail face of a complex industry apparently
| results in you getting blamed for the complexity.
| drone wrote:
| One might argue that the original sin of RH is marketing to
| people who don't have a grasp of how these systems work and
| not being used to having to learn these things when dealing
| with a consumer product.
|
| Some of the barriers to dealing with traditional brokerages
| created opportunities to learn, and to put one's self into
| the mindset that this is a thing that is new and complex
| (on your first encounter), and your general approach should
| be researching each new thing you're trying. Heck, just the
| signup and annual reporting requirements on IB will make
| you think long and hard about each type of transaction you
| might want to do.
|
| I can get behind making a business out of it, but I wonder
| what the long-term effects of trying to _gamify_ and
| _consumerify_ stock trading is going to have on laws,
| regulations, and the overall market conditions going
| forward. (I know what RH would say, they 're "levelling the
| playing field for the average Joe!" But, you know, Fidelity
| & co. did that a long time ago - they just didn't _gamify_
| it, they gave you access to it largely as it was.)
| TameAntelope wrote:
| Robinhood is, for many people, the only name they know in
| this space. Therefore, it _must_ be their fault.
|
| As the Internet grew, it raised the bar higher and higher
| on the "baseline" level of things one needed to
| reasonably know about before participating in any given
| conversation intelligently (bear with me). As a result,
| it became growingly acceptable to declare something one
| doesn't understand as morally "bad" for being complex,
| and since the experience of encountering something one
| didn't understand was widely shared, many folks pounced
| on that complexity as the problem, not their failure to
| grasp it.
|
| It's infinitely easier to declare a system as "bad" than
| to spend time to understand why it's built the way it is.
| Robinhood just happens to be what many people think of as
| "the system", rather than the actual financial system
| Robinhood is built on top of.
|
| I believe this could apply across a number of problems
| we're seeing online right now. Groups of people who band
| together (right or wrong) to rail against a system that
| exists for reasons they do not understand. Sometimes it's
| justified, sometimes it's not, but every time you get
| that same whiff of populist anger such as what Robinhood
| is experiencing right now.
| minsc__and__boo wrote:
| My SO and I pulled everything out of Robinhood two weeks ago in
| part because of this reason.
|
| The other part was we think Robinhood would go insolvent if
| their users made a run on their money, and we wanted to get out
| before that ever happened.
| ojnabieoot wrote:
| Everything about this story is just so frustrating.
|
| - While the GameStop thing should be investigated and the lack of
| transparency criticized, Robinhood's stated reason for halting
| the trades is plausible and corroborated by other people. I
| suspect their shadiness was because their internal finances are
| worse than they are letting on. The idea that they were acting as
| the foot soldiers of hedge funds (who were hardly overexposed to
| GME anyway) is preposterous.
|
| - Robinhood absolutely deserves to get in legal trouble (like
| "send the CEO to prison") for its horrendously predatory
| "appification" of retail investment[1]. I had a poor opinion of
| Robinhood and I was still shocked by how horrible their behavior
| was[2]:
|
| > In 2019, Robinhood rolled out a new cash management feature
| with an early access waitlist and utilized gamification to reward
| customers who interacted daily with the application by improving
| their position on the waitlist. Customers who did not interact
| daily watched their position on the waitlist precipitously
| decline, while those who succumbed to the effects of Robinhood's
| gamification soared up and up the waitlist.
|
| > In an effort to encourage trading, Robinhood provides lists of
| securities on its application, including lists of the most-traded
| securities on Robinhood's platform and the most popular
| securities traded by Robinhood customers. This is no different
| than a broker-dealer agent handing a list of securities to a
| customer, pretending to be surprised when the customer purchases
| securities from that list, and then proclaiming that he made no
| recommendations to that customer.
|
| > Robinhood advertisements use young actors and illustrate
| Robinhood's attempt to lure young, inexperienced investors into
| using its platform...[f]or example, one such advertisement
| contains a clip of a young adult saying "I'm a broke college
| student and investments might help my future tremendously."
|
| Sincerely rotten folks at that company.
|
| [1] https://www.cnbc.com/2020/12/16/robinhood-reportedly-
| facing-...
|
| [2] https://www.sec.state.ma.us/sct/current/sctrobinhood/MSD-
| Rob...
| mobjack wrote:
| These lawsuits seem silly.
|
| Are investors suing for the right to be the biggest fool in a
| pump and dump scheme?
|
| The consequences of not buying GameStop is that the investor has
| more cash in their account which doesn't change in value. Most of
| those who would have bought around the peak would have lost a lot
| of money.
|
| If Robinhood prevented investors from selling their shares or
| closing their positions then that would be grounds to sue.
| Investors were exposed to an extremely volatile stock with no
| means to exit and could have lost everything in that scenario.
| manishsharan wrote:
| I think you are minimizing the extent of Robinhood's perfidity.
| Almost all fiduciaries would have advised and blocked such
| trades but Robinhood can't decide to become a fiduciary on a
| whim. Robinhood was interfering in a decision made by a user .
| What if your calendar decides you shouldn't be dating a
| particular person ?
| VoodooJuJu wrote:
| I'm pretty skeptical of the negative attention Robinhood is
| receiving. It seems like the entities who actually acted in bad
| faith, the ones who attempted illegal shorts, are trying to
| divert attention. Like someone else said, Robinhood is just the
| fall guy here.
| ericmay wrote:
| My issue isn't the shorts, it's when the shorts (or others)
| start messing with the game board. You should be able to short
| a stock, no doubt about it. But you shouldn't be able to
| coordinate "short attacks" or use other tactics.
|
| I wonder if it may be a good idea to remove computers from
| trading except for execution enacted by humans because of human
| research. Should Bloomberg terminals be legal? Should everyone
| effectively have the same hardware? I wonder how someone in
| Oklahoma can compete with a large bank. Should they be able to?
| gruez wrote:
| >But you shouldn't be able to coordinate "short attacks" or
| use other tactics.
|
| https://www.institutionalinvestor.com/article/b1qdq0y5b79rzb.
| ..
| ericmay wrote:
| I'm not saying they used that tactic - but that the use of
| such tactics shouldn't be allowed.
| gruez wrote:
| The point is that the tactic isn't viable in the first
| place. It's almost like saying that we should ban people
| from making perpetual motion machines.
| ericmay wrote:
| Sure, insert any other similar tactic in place of a short
| ladder and I'd be interested in the discussion of why or
| why not it should be allowed.
|
| I'm also interested in discussing whether or not ETFs
| should exist. I wonder at some point if you just kind of
| eliminate price discovery and prop up zombie companies.
| bidirectional wrote:
| What illegal shorts? Short interest being above 100% of
| floatation can happen perfectly naturally without anything
| illegal being done.
| rob74 wrote:
| Yeah, about as "perfectly natural" as the stock market
| soaring while the economy is in crisis (i.e. logical, but
| completely perverted).
| MperorM wrote:
| why is shorting a company perverted? I would argue it's a
| great asset to society.
|
| Eg. those who shorted stock because they expected covid-19
| to cause a market dip, sent a giant signal to the entire
| world that covid was going to be a big problem.
| im3w1l wrote:
| If you are short a company then you benefit from harming
| it. In the example you provide, the short seller could
| benefit by exacerbating covid, by sabotaging the
| response. I'm not saying I'm definitely against all forms
| of shorting because of this, but that is one drawback at
| the least.
| shawabawa3 wrote:
| if you are long a company then you benefit from helping
| it. For example, lobbying to dismantle environmental
| regulations to increase the value of your fossil fuel
| stocks
| bidirectional wrote:
| You also benefit from harming its competitors.
| MperorM wrote:
| This is the same argument often made against prediction
| markets. I remain unconvinced this is a significant
| issue, but I'm always open to changing my mind :)
| rob74 wrote:
| Nothing against shorting in principle, the OP and me were
| just referring to being able to "sell" more shares of a
| company than there are in existence...
| MperorM wrote:
| How is that perverted? Shorting a stock is fundamentally
| no different than other types of debt.
|
| Imagine an economy of 3 people, A, B and C.
|
| A has $5.
|
| B borrows $5 from A.
|
| C borrows $5 from B.
|
| A borrows $5 form C.
|
| The economy started with $5 and $0 debt, the economy ends
| with $5 and $15 debt. Despite the fact that the society's
| total debt is now 300% the size of its economy, it is no
| different than how it started. Debt isn't inherently bad.
| Debt is a tool that allows us to collaborate.
| OJFord wrote:
| That can only happen with naked shorting, which is
| (illegal and) not implied by >100% short interest.
|
| Some of the short sales refer to the same shares; say
| there's one share in the company and it's (borrowed and)
| sold short thrice. The company's one share has been sold
| three times, but there haven't been sales of more shares
| than there are in the company - the three (short) sellers
| need to get that (same) one share back to close their
| position in sequence.
| smogcutter wrote:
| That's not mysterious or suspicious at all, it's just a
| consequence of being able to lend something fungible.
| Very similar to how bank lending affects the supply of
| money.
| klmadfejno wrote:
| It certainly opens up the door to malicious information
| asymmetries and pr campaigns.
| MperorM wrote:
| Yeah that's right.
|
| I am somewhat torn on where to stand on this. On one hand
| I do see why we would want regulation against insider
| trading & pump and dumps, on the other hand I worry that
| regulation isn't preventing either, and society quickly
| would become inoculated if we legalized it.
|
| When I read Robin Hanson's paper on insider trading and
| prediction markets, I became much more uncertain about
| whether we should regulate this area than I used to be.
|
| https://www.researchgate.net/publication/228340813_Inside
| r_T...
| klmadfejno wrote:
| I'd rather we just enact capital gains taxes to lower the
| overall incentive of financial wizardry to begin with.
| Force prices of assets back to the value of their
| dividends. Make it painful to be a growth stock unless
| your case for valuable future dividends is really
| compelling.
| CydeWeys wrote:
| As does going long. Your classic pump-and-dump scheme has
| led to thousands of disinformation campaigns that don't
| require shorting at all.
| klmadfejno wrote:
| On some level shorting is worse though. A pump and dump
| scheme hurts investors. A shorting scheme can hurt
| investors and destroy the company.
| fractionalhare wrote:
| How does shorting destroy a company destroy it?
| klmadfejno wrote:
| It could open a company to a hostile takeover, or cripple
| them if they were reliant on a realistic share price to
| raise necessary capital.
|
| Shorting a company itself isn't so bad. Orchestrating bad
| PR to boost your short option earnings is bad.
| nrmitchi wrote:
| > Orchestrating bad PR to boost your short option
| earnings is bad.
|
| So legit question, lets flip this around. Lets pretend
| that I am super confident, and have strong evidence to
| believe, that company $ABC, currently trading at
| $100/share, has been committing fraud and is drastically
| over-valued because of it. Lets say, I don't know, it was
| intentionally skipping numbers during the day to give the
| appearance of higher volume[0]. I've determined this by
| investing a bunch of resources in research to determine
| that reported numbers don't line up with the actual
| number of customers, or don't line up with other
| available data from other sources.
|
| So I take a short position. But I'm not allowed to say
| anything about it. I keep silent.
|
| Now 3 years later, the fraud is uncovered elsewhere, I
| make a killing, and my only response is "Ya, I knew they
| were fraudulent years ago, and here is all of my proof.
| But I didn't say anything for 3 years."
|
| Would you argue that I'm not complicit in that fraud for
| all the years I knew about it?
|
| [0] https://www.bloomberg.com/news/features/2020-07-29/lu
| ckin-co...
| CydeWeys wrote:
| Shorting can also help investors in the market at large
| if it helps bring down companies that are obvious scams.
| Some short seller reports have pretty famously destroyed
| companies that were up to no good, preventing further
| harm to future investors and boosting confidence in the
| valuations of the rest of the market. If there's no money
| in doing all of those short seller reports, then people
| won't do them, and the market will have less information
| available to it in total, and more frauds will continue
| to go under the radar.
| klmadfejno wrote:
| Like what
| CydeWeys wrote:
| Enron is one of the most famous examples:
| https://www.finance-monthly.com/2017/10/the-
| top-10-greatest-...
| rcxdude wrote:
| Luckin Coffee, for example (massive valuation until it
| turned out a huge number of their sales were fraudulent.
| Exposed by short sellers). Enron also was in part brought
| to light by short sellers.
| mdoms wrote:
| Just so you know, outside of your bizarro-world America-
| brain, the world was well aware that Covid-19 "was going
| to be a big problem" without the help of your stock
| market games.
| MperorM wrote:
| I'm Danish and live in Denmark.
|
| Please keep your next bigoted comment to yourself, they
| don't belong on this forum.
| Railsify wrote:
| Were the shorts illegal? I keep seeing the accusation but I
| don't think it's possible to short sell a stock that you have
| not borrowed.
| ceejayoz wrote:
| It's definitely _possible_.
|
| https://en.wikipedia.org/wiki/Naked_short_selling
| Railsify wrote:
| Possible but would require a licensed broker to break the
| law. It's like check kiting but with the aid of a broker
| the broker would have to credit your account shares that do
| not exist.
| ceejayoz wrote:
| > In May 2012, lawyers acting for Goldman accidentally
| released an unredacted document revealing compromising
| internal discussions regarding naked short selling. "Fuck
| the compliance area - procedures, schmecedures", Rolling
| Stone Magazine quoted Peter Melz, the former president of
| Merrill Lynch Professional Clearing Corp. as saying in
| the document.
| user-the-name wrote:
| > In May 2012
| ceejayoz wrote:
| That's not long ago, and it's after the practice was
| banned. You think the banking industry has had an ethical
| epiphany and sudden love for regulations in the last
| decade?
| user-the-name wrote:
| What I think is that if you are going to make a very
| specific claim that fraud has occurred, you should back
| that up with some evidence that is similarly specific,
| not with a "well it could happen, it happened once before
| nine years ago!"
| fractionalhare wrote:
| It's possible; it's called naked short selling. The only
| reason people actually think it might have happened is
| because of widespread accusations on reddit. These
| accusations are financially illiterate and deluded
| conjecture, but they're stated with utter conviction so a lot
| of people find them convincing.
|
| There isn't actually any evidence the named hedge funds were
| engaged in naked short selling. For the most part, people
| seem to misinterpret short interest and failure to deliver
| data as an indication naked short selling occurred.
| pjc50 wrote:
| > the ones who attempted illegal shorts
|
| [citation needed]; is this actually true or is this just part
| of the WSB sales pitch?
| BunsanSpace wrote:
| Melvin capital and several other hedge funds engaged in naked
| short selling, and many backbone clearing houses enabled it
| via share counter fitting. (naked short selling is illegal)
|
| The deeper issue is the SEC not cracking down on the fail to
| delivers and naked short selling.
|
| I think Robinhood and other brokerages are the scape goats
| here. Their hands where tied when the companies that
| processed their orders refused to process trades for those
| stocks.
|
| The whole debacle has exposed a lot of corrupt, fraud and
| other nasties while showing the SEC is completely unwilling
| to do their job.
| penagwin wrote:
| Is there a source for this? I watched their testimony to
| congress and they said they aren't even able to place naked
| shorts/calls.
|
| You can still get a short interest above 100% without
| selling naked calls/shorts.
| nrmitchi wrote:
| This whole "illegal naked short sales" story recently is
| a conspiracy theory, not a valid theory, so you're not
| going to get a source.
|
| The main difference between a conspiracy theory and a
| valid theory is that a conspiracy theory is non-
| falsifiable; any evidence to the contrary is dismissed as
| "fake news" or "the deep state is hiding the evidence".
|
| In your example here of "they testified to Congress under
| penalty of perjury", the response will be "Ya, they lied,
| because they knew the whole system would back them. They
| faked all of the records that show that they didn't
| actually do it!".
|
| Now this isn't to say that a conspiracy theory _can 't be
| right in the end_, but that still doesn't make it a valid
| theory.
| fractionalhare wrote:
| _> The main difference between a conspiracy theory and a
| valid theory is that a conspiracy theory is non-
| falsifiable; any evidence to the contrary is dismissed as
| "fake news" or "the deep state is hiding the evidence"._
|
| Likewise: if you're debating a claim with someone who is
| being intellectually honest, they'll receive your
| evidence and consider it critically on the merits. If you
| debate a claim with a conspiracy theorist, they will use
| any evidence you provide them to support the idea that
| the conspiracy theory is even bigger than they could have
| imagined - more parties are corrupt, more people are in
| on it, etc.
|
| It's exhausting.
| fractionalhare wrote:
| _> Melvin capital and several other hedge funds engaged in
| naked short selling, and many backbone clearing houses
| enabled it via share counter fitting. (naked short selling
| is illegal)_
|
| No they didn't. Naked short selling is different from short
| selling while the short interest is high.
| dangerbird2 wrote:
| To clarify, People incorrectly assumed that because the
| short interest to float percentage was over 100%, the
| hedge funds had to be naked shorting. This is not true at
| all: because of how short selling works, there can be
| more than one short sale tied to a single share.
|
| Seller A borrows a share, sells it to buyer B. Buyer B
| then leases the share to Seller C, who then short sells
| it. This is not a naked short, but a plain ol' short
| sale.
|
| A naked short would be where Seller A doesn't own a
| share, but sells one to Buyer B anyway, with a contract
| stipulating the time the seller must buy and deliver the
| share. With the exception of market makers, this is
| illegal but ridiculously easy to detect, since Seller A's
| sales exceed the number of shares purchased. There is
| zero evidence any of the hedge funds were short selling.
| firebird84 wrote:
| This is exactly it. It's basically fractional reserve
| banking all over again, except that instead of dollars,
| we use shares.
|
| It may be in the national interest to impose "reserve
| requirements" on brokerages in order to prevent too much
| perversion of market prices.
| dangerbird2 wrote:
| Aside from being all but unenforcable, Restricting short
| selling like that will almost certainly cause stocks to
| become overvalued. Short selling is an important balance
| on overvalued stocks, and there are cases like the Enron
| scandal where short sellers were the first to detect a
| company is engaging in fraudulent behavior[1].
| Restricting short selling would allow companies cooking
| the books to keep their stock values at artificial levels
| despite investor skepticism
|
| [1] https://en.wikipedia.org/wiki/Enron_scandal#Timeline_
| of_down...
| nix0n wrote:
| > With the exception of market makers, this is illegal
|
| Do you mean, this is legal for market makers?
|
| Is there any other way that the number of shares being
| shorted, could be greater than the number of shares in
| existence?
| dangerbird2 wrote:
| > Do you mean, this is legal for market makers
|
| Yes. They need to be able to make naked shorts, as this
| is what allows traders to buy a share without having a
| willing seller at any given moment and vice versa.
|
| > Is there any other way that the number of shares being
| shorted, could be greater than the number of shares in
| existence?
|
| As I mentioned, It's perfectly cromulent to have multiple
| non-naked shorts on the same shares, so the short
| interest as a percentage of float can certainly exceed
| 100% without any illegal behavior. I imagine the reason
| for this misconception is that people think of a short as
| an "anti-share" that can't exceed the number of shares
| being traded, when it's really a more abstract investment
| tactic or contract.
| notyourday wrote:
| > Do you mean, this is legal for market makers?
|
| Yes, market makers are allowed to sell short without
| having a locate.
|
| It should be noted that the market makers will attempt to
| zero out their total exposure by the end of the trading
| session.
| mlrtime wrote:
| That should be DMM or PMM or the equivalent designation
| by the exchange. These are special appointments, you
| can't just call yourself a market maker and sell short.
| notyourday wrote:
| Oh yes, definitely. There are a lot of regulations for
| market makers.
| fractionalhare wrote:
| Which firms attempted illegal short selling, and what is your
| specific evidence to support that they did?
| SkyBelow wrote:
| Is this needed to make a claim?
|
| If I say that someone stole the Declaration of Independence,
| then I would only need to provide evidence it was stolen, not
| evidence that shows some particular person stole it.
|
| In this case, evidence of illegal shorts is what one would
| need to provide to back their claim, not evidence that a
| specific firm engaged in illegal shorts.
| gruez wrote:
| >In this case, evidence of illegal shorts is what one would
| need to provide to back their claim
|
| Okay, what's the evidence of illegal shorts?
| Swenrekcah wrote:
| Everything I (think I) know about this I have learned in
| the last few weeks so take this with a grain of salt, but
| I understand that GME shares have failed to deliver a lot
| which can be evidence of naked shorts which are
| supposedly illegal.
| gitdown42 wrote:
| Robinhood deserves negative attention, but not for restricting
| trades to closing-ony. That appears to not have been much of a
| choice.
|
| They do deserve a lot of negative attention for running a
| brokerage in a way that invited a lot of risk-ignorant retail
| traders to instantly trade into leveraged positions for which
| they should never have been qualified in the first place.
| Robinhood has the valuation it does because it brought
| leveraged day trading to the masses. As someone who worked at a
| brokerage and designed trading tools, leveraged day trading
| isn't for the masses.
| Mauricebranagh wrote:
| And add these adverts plugging "factional" shares at naive
| first time investors to the list, tbh I think the SEC should
| encourage share splits once a share gets to Tesla levels.
|
| Your first investments should never be in individual shares -
| start with an tracker ETF for a few years before branching
| out to active management or even individual shares.
| SilasX wrote:
| I don't think the inviting was where it went wrong, but in
| having a criminally bad UX that deceives those same naive
| users. Like executing your purchase as a margin buy without
| making clear it _is_ a margin buy that can be sold out from
| under you:
|
| https://news.ycombinator.com/item?id=25962906
|
| Or the suicide from the kid who didn't understand his
| position wasn't actually extremely negative.
| unethical_ban wrote:
| I'm not a big fan of "RH should protect people more"
|
| They clearly did not have the finances available to provide
| the service they offer. Regardless of whether that was forced
| on them, the outcome was RH's failures manipulating a market.
|
| RH should be fined and sued out of existence.
|
| I also don't see the value in short selling. Seems like a way
| to gamble legally in all 50 states.
| gpm wrote:
| Incidentally affecting the market is not market
| manipulation...
| unethical_ban wrote:
| Their incompetence is the direct cause of the tanking of
| a stock.
|
| Even if it wasn't _intentional_ , it was artificial.
| pwnguin wrote:
| Short selling is absurdly risky, but selling put options
| should probably remain allowed.
| mlrtime wrote:
| Probably? Selling short a put is long the stock.
|
| I'm glad we aren't creating SEC rules based off of
| peoples' feelings.
| unethical_ban wrote:
| Sure, I'm not lobbying the law to be changed on my
| feelings, but someone able to risk _infinity_ money in
| the hopes of a company's value decreasing does "feel"
| dangerous and wrong.
| totalZero wrote:
| The hedge fund shorts were irresponsible but I don't think
| there exists any credible argument that they were illegal.
| pwnguin wrote:
| I'm not even sure Robinhood is falling. Yes they had to take
| out a billion dollar bridge loan, but that means their assets
| under management just shot up massively. And now that the
| frenzy is over, they repay the loan and keep the assets under
| management.
| omgJustTest wrote:
| Hard to hear.
|
| Robinhood has normalized pay for flow, a service that is
| literally shaving cash off each order in exchange for "free
| trading". Pff can only generate net revenue by making traders
| pay more per trade than actual best execution, which Robinhood
| is suppose to be legally required to deliver. The SEC in the
| 90s and 2000s thought the practice amounted to middle manning
| traders and should be illegal.
|
| Basically: Robinhood gives stock purchases to a third party,
| who pays Robinhood for each transaction in "rebates". If you
| have a free trading account other than fidelity, you are paying
| insane transaction fees that are hidden from you by the pff.
| It's middle manning, and Robinhood is paid to enable it.
|
| Not a fall guy, just not all the guys that need to fall.
| croon wrote:
| Isn't the not-so-secret secret that every other brokerage
| also sells flow [0], but still charges the end user?
|
| Making Robinhood just less bad than the rest.
|
| [0] https://piper2.bluematrix.com/sellside/EmailDocViewer?enc
| ryp...
| omgJustTest wrote:
| On the topic of trading freezes and capital requirements:
| there are a lot of ppl who will loan a broker money.
| Intersect them with the number of ppl who will and can PFF
| and now you are talking about 1-10orgs and most of them are
| high frequency middle manning the orders coming in. If you
| are one of the 1-10 orgs who do this 1. You're scum and 2.
| You are big enough to be on both sides of this definition of
| the conflict of interests
|
| What happens to RH rebates if they no longer have 1-10 of
| those PFF customers?
| astura wrote:
| Isn't this something almost all brokerages do?
|
| https://efipm.medium.com/zero-commission-brokers-selling-
| ord...
| mlrtime wrote:
| When RH sells to a internalizer for payment (PFOF) it is
| always inside the NBBO (National Best Bid and Offer) which is
| always going to be a better price than what you would receive
| on a public exchange AND there are 0 commissions.
| rcxdude wrote:
| Exactly. It's not the user paying for it, it's whoever
| would have been on the other side of the trade without the
| pay-for-flow.
| Chris2048 wrote:
| > the entities who actually acted in bad faith
|
| Then RH can sue _them_. As the consumer interface, the buck
| either stops with them, or they pass it along.
| Taylor_OD wrote:
| You think Robinhood did nothing wrong in the eyes of the law?
| Or that they did not treat their customers (users of the app
| not the purchasers of their data) poorly? Or that their app did
| not disable users from trading shares of stocks?
|
| I'd genuinely shocked to see someone say they think Robinhood
| didnt do anything wrong. Unless I'm misunderstanding you.
| diehunde wrote:
| What they did wrong was not having the resources to handle
| that volatile environment. I know other companies also halted
| trading, but many didn't. They are bitting off more than they
| can chew.
| CydeWeys wrote:
| Is that illegal though? I don't think so.
|
| And also, they were offering customers a courtesy to use
| unsettled funds to buy stocks immediately, rather than
| waiting two business days for funds to clear. Most
| customers generally appreciate this feature (I certainly
| do!).
|
| The only thing I'd say they did wrong (but not illegally
| so) was not having finer-grained controls ready to go to be
| able to shut down purchases of shares using unsettled funds
| and/or margin, while still allowing purchases by users with
| settled funds. This is a feature that some other brokers
| already have, i.e. you can buy large caps with unsettled
| funds but penny stocks require the use of settled funds.
| nrmitchi wrote:
| In this situation, I don't think that the distinction
| between settled and unsettled funds would have mattered.
|
| Robinhood was still responsible for the clearinghouse-
| mandated deposit requirements, whether the purchase was
| from settled or unsettled funds.
|
| My understanding is that the deposit funds, and the
| funds-fronted-on-margin, are two different groups of
| money.
| CydeWeys wrote:
| But the point is that they can meet the deposit
| requirements on settled customer funds easily with those
| funds themselves, since those funds are actually settled.
| But on unsettled customer funds, they have to come up
| with their own money to bridge the gap until the customer
| funds settle.
| nrmitchi wrote:
| No, they can't. They can't use customer funds for DTCC
| deposit requirements. It's just not allowed.
|
| IIRC the deposit requirement was raised to 100%.
|
| Even if the customer funds were settled, and the customer
| wanted to buy 1 share of GME for $300, Robinhood would
| have to post $300 _of it 's own money_, just in case. Now
| would Robinhood get that money back? Most likely, but
| that doesn't mean they don't have to have it to deposit
| in the first place.
| CydeWeys wrote:
| Hrm, so that makes Robinhood's situation even more
| impossible then. There's nothing they could've done to
| continue to allow people to buy $GME absent coming up
| with billions of dollars for a few days' worth of
| deposits.
| LatteLazy wrote:
| I imagine very few have any merit.
|
| The far more damaging aspect is commercial: they're no longer the
| darling of r/WSB.
| criddell wrote:
| Does the Robinhood TOS not require arbitration to settle disputes
| with users?
| jcranmer wrote:
| I've read a couple of the lawsuits on courtlistener. From what
| I've read, these lawsuits are going to go absolutely nowhere.
|
| The biggest problem most of the lawsuits face is that there is a
| provision in the Terms of Service that basically says that
| Robinhood can prevent you from trading in any stock it wishes.
| Any complaint that amounts to "Robinhood violated its contract"
| is going to go down in flames as a result--it didn't violate its
| contract; the people who are complaining didn't _read_ the
| contract.
|
| That really only leaves two kinds of claims that might have legs:
| arguing that Robinhood violated securities laws, and arguing
| conspiracy on the part of hedge funds. The first part is
| difficult to win on because many of the complainants will simply
| lack the standing to do so (you have to have owned the stocks in
| question and bought/sold at a manipulated price to show standing,
| and since the complaints are generally on the theme of "we tried
| to buy but couldn't", they fail that) [1]. The last one might
| survive until discovery if properly pled, but I sincerely doubt
| they'll ever eventually win it.
|
| [1] One of the cases filed for a temporary restraining order
| mainly on the basis of the complaint. The judge found that the
| briefing didn't even meet the "raises serious questions" burden
| of proof, although they mentioned that the TRO failed really hard
| at the "suffered irreparable harm" part because losing money is
| pretty much by definition a reparable harm.
| rkagerer wrote:
| Have any claimants presented compelling arguments for the judge
| to throw out that contract provision?
| jcranmer wrote:
| In short, no, not that I've seen. However, there also hasn't
| particularly been much of a reason to yet--there haven't been
| any motions that need argumentation, and the defense
| (Robinhood) hasn't responded yet to the cases.
| nextaccountic wrote:
| > That really only leaves two kinds of claims that might have
| legs: arguing that Robinhood violated securities laws, and
| arguing conspiracy on the part of hedge funds. The first part
| is difficult to win on because many of the complainants will
| simply lack the standing to do so (you have to have owned the
| stocks in question and bought/sold at a manipulated price to
| show standing, and since the complaints are generally on the
| theme of "we tried to buy but couldn't", they fail that)
|
| Someone that owned GME shares could argue that by restricting
| buying but not selling shares, Robinhood was acting to lower
| the value of this asset. They might argue that in this
| situation the only fair thing to do is to restrict buying and
| selling altogether.
| gruez wrote:
| >Someone that owned GME shares could argue that by
| restricting buying but not selling shares, Robinhood was
| acting to lower the value of this asset. They might argue
| that in this situation the only fair thing to do is to
| restrict buying and selling altogether.
|
| Whether that's fair is debatable. If you held GME shares and
| wanted to get out, but couldn't because robinhood restricted
| sells for no reason (ie. they couldn't execute buys because
| they couldn't put up the collateral, but they can still
| process sells because they don't need collateral for that),
| that can also be construed as unfair.
| nrmitchi wrote:
| > restrict buying and selling altogether
|
| Robinhood is a brokerage, they are not the entire stock
| market.
|
| Robinhood has 0 ability to prevent people from selling GME in
| the market at large.
|
| It kind of feels like some people don't understand that
| Robinhood is only a gateway into a much larger system, and is
| fundamentally different than an "app/game" that controls the
| entire system on it's own servers.
| Kranar wrote:
| Contracts do not override a broker's fiduciary duty to its
| clients. A fiduciary duty is the highest standard of care
| recognized by law and requires the agent to act in the best
| interest of the principal.
|
| Once the evidence is presented, a plaintiff may find that
| Robinhood did not act with the highest standard of care, did
| not do everything it could have done to prepare for and handle
| the situation.
|
| We don't know because the evidence hasn't been disclosed, a
| major part of any lawsuit is to give plaintiffs an opportunity
| to assess the evidence produced by the defendant to determine
| if any wrongdoing took place.
| mam2 wrote:
| Rh will argue best financiary duty was to protect his
| customers from the volatility
| boublepop wrote:
| And the question will be posed if making it an absolute
| certainty that your customers lose value is a justified
| action because it reduces volatility. And RH will have a
| tough time arguing. "Yes, yesterday you had 2mil but you
| didn't know if it would double or halve. Today you know for
| sure that you have 100k, so why aren't you happy? I'm just
| looking out for your best interests!"
| foolmeonce wrote:
| They let their customers sell which was probably a
| fiduciary responsibility.
|
| An obligation to maintain the market for a stock because
| a portion of it's owners are your customers would be a
| bizarre responsibility.
| trestenhortz wrote:
| Fuck robinhood I hope they are bankrupted.
|
| A company with zero integrity.
|
| I lost a huge amount of money that day.
|
| I don't mind losing fair and square .... make a bad call, lose
| the dough, pay the price - that's the deal.
|
| I'm even ok with losing for reasons I don't understand due to the
| concealed rigged nature of the markets.
|
| But losing my money on the same day that robinhood manipulates
| the market openly and publicly really felt unfair.
|
| I'd be most pleased if they went from pending 50 billion IPO to
| ZIPPO. Nothing for the founder and nothing for the investors. I
| hate this company.
|
| And remember if you're considering opening an account with
| robinhood what you personally might lose by putting your money
| with them.
| [deleted]
| vga805 wrote:
| Multiple brokerages shut down buying due to the collateral
| requirements that were raised. Robinhood seems like the fall
| guy here, hopefully people start asking the right questions
| about the collateral and the manipulation there.
| trestenhortz wrote:
| That is absolutely not the reason that they publicly stated
| they stopped allowing purchasing and only allowed selling.
|
| I'd dance on the grave of this company.
| elefanten wrote:
| Who cares? Companies rush out dumb comms under pressure
| then walk em back or change them.
|
| They're not _obligated_ to stick to the first thing they
| said on a topic -- especially when it 's customer comms.
|
| It's not a good source for answering what they did / why
| they did it.
| bidirectional wrote:
| Well then what is the reason? I've not seen anything else.
| The CEO was cagey when asked about liquidity, but every
| official release has suggested that the collateral
| requirements were the problem.
| xadhominemx wrote:
| Actually it is the reason they stated
| sokoloff wrote:
| There was a several hour period one evening where some
| "it's for your own good because of the volatility"
| message was the first comms from the company on the
| topic.
| kmlx wrote:
| other brokerages simply put up the money. this meant that
| while huge swaths of the retail investors in the US (and
| parts of Europe) were not allowed to buy GME, other retail
| investors had no issues.
|
| to top it off, certain brokerages only allowed sell orders.
|
| this meant a huge imbalance in the market.
|
| i really don't get how this is legal and why heads aren't
| rolling.
|
| case in point: saxo bank let me trade GME without an issue.
| but since most brokerages did not put up the new collateral,
| and only allowed sell...
|
| basically this is a case of market manipulation by way of
| changing the rules in realtime.
|
| i get why they changed the rules, i don't get why the SEC is
| not removing the authorisation of the participants in this
| scheme and also not prosecuting the companies.
|
| i'm clearly missing some info here and need to read some more
| on this subject.
| jusonchan81 wrote:
| The main problem was majority of the GME interest was on
| Robinhood platform. So other brokers were able to get away
| with deposits or shorter blocking.
|
| The next squeeze will put pressure on the other brokers
| given the movement of accounts out of Robinhood. I feel
| this works out in favor of Robinhood and as they don't need
| to deal with gambling style traders.
| bidirectional wrote:
| So what are you proposing? All brokerages must put up the
| collateral no matter what? Surely it is up to the
| individual businesses whether they can afford to, want to
| take the risk, etc.
| tedunangst wrote:
| Some people seem to be suggesting that when RH got the
| collateral call for funds they didn't have on hand, they
| should have instantly gone into receivership and wound
| the whole operation down, closing all accounts. Or
| something like that. They probably don't mean that, but
| it's the logical conclusion of what they're saying.
| Always have the required collateral or face instant
| annihilation.
| CydeWeys wrote:
| No brokerage is under any obligation to use their _own
| funds_ as collateral in order to allow you to trade using
| unsettled funds or margin on highly volatile securities. A
| brokerage could be left holding a huge bag here if they put
| up their own funds to allow someone to buy GME, then the
| incoming unsettled funds from the customer bounce, and now
| the brokerage is left holding shares of GME worth $100 or
| whatever and they 've incurred a huge loss.
|
| You are NOT entitled to trading with a brokerage's funds as
| if they were your own.
| minsc__and__boo wrote:
| For margin trading, sure, but IIRC Robinhood halted all
| trading, even with your own money.
|
| I think it has more to do with Robinhood giving away free
| trading, while the trades themselves have a non-zero
| variable cost to Robinhood. Since their revenue comes
| from selling insightful user trade data, a run on GME
| isn't insightful and had diminishing returns (my
| hypothesis anyways).
| [deleted]
| gruez wrote:
| >other brokerages simply put up the money
|
| ...assuming they had the money. On the day they suspended
| trading, they also raised $2B in funding the same night. A
| few days later they partially unrestricted trading.
| joncrane wrote:
| >other brokerages simply put up the money.
|
| Nope, multiple other brokerages including Interactive
| Brokers also suspended options trading and opening any new
| positions in the so-called "meme" stocks.
| lugorrr wrote:
| I can only recommend reading this [1] digest.
|
| [1] https://blog.bitmex.com/walkaway/
| dmos62 wrote:
| For the record, why did Robinhood stop the trading? I know
| there's been an uproar, but due to the volume of articles it's
| been difficult to get a clearheaded idea of why Robinhood
| actually did it.
| SalimoS wrote:
| There is an episode on NPR
| https://www.npr.org/2021/02/02/963466346/robinhoods-very-
| bad...
| trestenhortz wrote:
| They've removed the original blog post that gave their
| rationale.
|
| If anyone can find it I'd like to read it again.
|
| The original reason was some bullshit about protecting
| investors from volatility.
| a254613e wrote:
| Liquidity issue. Or rather, extremely close to it.
|
| The CEO said he "doesn't want to use the L word" to describe
| it.
|
| Basically they had to cover/deposit the purchase trades
| themselves, before they ran out of money to do so (liquidity
| issue) they shut down purchasing - then went on record on
| CNBC etc claiming that it's not a liquidity issue.
|
| Interview with the CEO https://youtu.be/LqoJApzkaPU?t=404
| where he confirms that's the case
| [deleted]
| dmos62 wrote:
| To answer my own question: quoting
| https://blog.bitmex.com/walkaway/
|
| > "Brokers must post margin with the Depository Trust &
| Clearing Corporation and National Securities Clearing
| Corporation at the end of each day to ensure enough funds are
| reserved to cover any trading losses."
|
| > The "meme" stonks' volatility skyrocketed, which meant that
| the clearing organisations could ask for more collateral from
| brokers on the grounds of needing to protect themselves from
| additional potential risk when settling the brokers' trades.
| It takes two business days to settle stocks in the so-called
| digital age...
|
| > Robinhood in particular was told to come up with $4
| billion, or they would not be able to facilitate any trading
| the following day. RH, apparently not having that much cash
| on-hand, said, "how about we stop trading or severely curtail
| trading in the stocks that are causing PAIN to various
| masters of the universe?" The clearing houses said, "OK, in
| that case, you would only need to post $700 million." RH
| agreed to that figure, rushed to raise more money from the
| Street and/or Silicon Valley, and then subsequently shut off
| trading on Jan 28th and into the weekend. (This is
| information gleaned from an interview the CEO of RH gave to
| Elon Musk on Clubhouse).
|
| So, it's the clearing houses that strongarmed shutting down
| the trading.
| trestenhortz wrote:
| That's not the reason robinhood gave at the time.
|
| Also, robinhood waited till the end of the day to lift its
| ban, despite other companies had followed robinhood lead
| lifting their bans hours earlier.
| gruez wrote:
| >despite other companies had followed robinhood lead
| lifting their bans hours earlier.
|
| maybe because the other companies don't have a high
| concentration of wsb users?
| JumpCrisscross wrote:
| > _That's not the reason robinhood gave at the time_
|
| Hence, lawsuits.
| fennecfoxen wrote:
| Even if he knowingly, brazenly lied, and lied worse than
| this, that's a weak basis for a lawsuit by itself. You'll
| need to prove some damages from the lie.
| cwhiz wrote:
| I don't really care what the rules are. Arbitrarily preventing
| people from buying, but not selling, is market manipulation. Any
| company that took part in this should be dismantled. If you need
| to halt trading because of liquidity requirements, halt all
| trading.
| cortesoft wrote:
| It wasn't arbitrary. There is huge risk for brokers when very
| volatile stocks are bought at heavy volume. The risk is not
| there when selling stock. The companies backing the risk RH was
| taking rightfully asked for more collateral, and RH wasn't able
| to come up with it.
|
| It was in no way arbitrary.
| OJFord wrote:
| Better, it's reduced.
| OJFord wrote:
| No, not allowing people to close open positions would be way
| more of a shit show, and way more likely to look bad (on the
| broker) in court.
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