Robinhood Trading Systems Fail in Volatile Market Class Action

In recent months, the stock market has been very volatile, plunging downwards and shooting up again in connection with the coronavirus pandemic. Investors must make decisions—and trades—quickly. The complaint for this class action alleges that services for online trading firm Robinhood failed at important times, leaving investors unable to buy or sell securities for their accounts.

Robinhood allows investors to make free trades online. (Named as defendants in this case are Robinhood Markets, Inc., Robinhood Financial, LLC, and Robinhood Securities, LLC.) In December of 2019, it claimed to have more than 10 million accountholders.

By January, most people were hearing reports about the spread of the coronavirus. The CBOE Volatility Index (VIX), which is used as a measure of volatility in the market, began to rise significantly. The higher the VIX, the more volatile markets are likely to be, with sharper rises and falls.

The peak was on February 28, 2020. On the next trading day, March 2, the VIX fell by -16.7%, with the market showing large gains, including the largest single-day point gain for the Dow Jones Industrial Average (DJIA). The following day, March 3, the markets opened lower, rebounded for a while, then ended with the DJIA lower than on the previous day. That week, the DJIA rose or fell by an average of 3.4% per day.

The complaint notes, “Just before the markets opened on Monday, March 9, 2020, the VIX spiked up +42.3%: from 41.94 to peak at 59.66 points. This is the highest VIX number since the financial crisis of 2008, and an increase of over +240% from its closing value on February 20, 2020.” The markets saw a sell-off, which lowered stock prices until the NYSE circuit breakers tripped, stopping trading for fifteen minutes.

Why are these dates significant? The complaint alleges that at crucial times in this very volatile period, Robinhood’s services were down. “For nearly an entire trading day on March 2, 2020, several hours on the morning of March 3, 2020, and approximately an hour on March 9, 2020, Robinhood’s service completely failed, preventing clients … from being able to buy or sell securities in their accounts.”

At the same time, Robinhood’s e-mail systems were down, so that investors could not get through to the company to find out what was happening.

The complaint says, “Robinhood’s system failure during these days of record-setting trading comes at the worst possible time for investors and caused its clients to lose millions of dollars.”

The complaint defines a class and two subclasses:

• The Nationwide Class for this action is all Robinhood account holders or users within the US.
• The first subclass is all Robinhood Gold account holders or users in the US.
• The second subclass is all Robinhood account holders or users in the US who were not able to execute option or futures trades during the outages.

Article Type: Lawsuit
Topic: Investments
Tags: Electronic/Computer System Failure, Investment Losses, Investments