Robinhood is facing nearly 50 lawsuits over GameStop frenzy(nytimes.com)
nytimes.com
Robinhood is facing nearly 50 lawsuits over GameStop frenzy
https://www.nytimes.com/2021/02/26/business/robinhood-gamestop.html
165 comments
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.
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.
Rh will argue best financiary duty was to protect his customers from the volatility
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!”
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.
An obligation to maintain the market for a stock because a portion of it's owners are your customers would be a bizarre responsibility.
> They let their customers sell which was probably a fiduciary responsibility.
Given the context of gamestop's stock, only allowing to sell stocks is the exact opposite of protecting the customer's best interests.
I mean, the high demand for gamestop's stock was motivated by the rally behind a retail-backed short squeeze, where hedge funds were reported to have massively shorted gamestop's stocks. Barring customers from buying more gamestop stocks meant they were unable to strengthen their positions and thus profit from the short squeeze,and pushing them to sell represented a pressure to kill off the short squeeze, thus acting on the exact opposite of their customer's best interests.
Then there's the reported news that one of RobinHood's new backers ends up being one of the hedge funds that stood to loose massively due to this retail-backed short squeeze.
Given the context of gamestop's stock, only allowing to sell stocks is the exact opposite of protecting the customer's best interests.
I mean, the high demand for gamestop's stock was motivated by the rally behind a retail-backed short squeeze, where hedge funds were reported to have massively shorted gamestop's stocks. Barring customers from buying more gamestop stocks meant they were unable to strengthen their positions and thus profit from the short squeeze,and pushing them to sell represented a pressure to kill off the short squeeze, thus acting on the exact opposite of their customer's best interests.
Then there's the reported news that one of RobinHood's new backers ends up being one of the hedge funds that stood to loose massively due to this retail-backed short squeeze.
They blockee when it was at the top tho.. and most shares had been bought. There was 0 volume.
> They blockee when it was at the top tho..
That's a weird re-phrasing of "they caused the stock to drop by manipulating the market through blocking buys".
And then there's the backpedalling by RobinHood when they reinstated buys but at a very limited rate of what? One per customer?
That's a weird re-phrasing of "they caused the stock to drop by manipulating the market through blocking buys".
And then there's the backpedalling by RobinHood when they reinstated buys but at a very limited rate of what? One per customer?
There was 0 buy volume from retail, but there were sell volume, thus pushing the price down.
> Rh will argue best financiary duty was to protect his customers from the volatility
Wouldn't that line of argument determine that traders would have the fiduciary duty to only allow their clients to sell on price hikes and buy on price drops?
Because otherwise that line of reasoning is highly arbitrary in the sense of what RobinHood claims is in the best interests of his customer, and thus very unlike anything regarding fiduciary responsibility.
Wouldn't that line of argument determine that traders would have the fiduciary duty to only allow their clients to sell on price hikes and buy on price drops?
Because otherwise that line of reasoning is highly arbitrary in the sense of what RobinHood claims is in the best interests of his customer, and thus very unlike anything regarding fiduciary responsibility.
Have any claimants presented compelling arguments for the judge to throw out that contract provision?
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.
One side-effect is the suits provide a lens on the parts of the T&Cs that retail investors do not like.
Court action (and senate hearings)have the ability to hold the publics attention under certain circumstances. Especially if there is a reviled antagonist, for which hedge funds are a good casting
Court action (and senate hearings)have the ability to hold the publics attention under certain circumstances. Especially if there is a reviled antagonist, for which hedge funds are a good casting
You mean that somewhere in the huge Wall Of Text..err Terms of Service, they can say that they want my firstborn child for human sacrifice and once I click Accept, I am a goner ?
Did Robinhood make people click that they accept the terms?
> 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.
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.
>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.
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.
> 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.
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.
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.
What illegal shorts? Short interest being above 100% of floatation can happen perfectly naturally without anything illegal being done.
Yeah, about as "perfectly natural" as the stock market soaring while the economy is in crisis (i.e. logical, but completely perverted).
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.
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.
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...
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.
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.
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.
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.
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.
It certainly opens up the door to malicious information asymmetries and pr campaigns.
As does going long. Your classic pump-and-dump scheme has led to thousands of disinformation campaigns that don't require shorting at all.
On some level shorting is worse though. A pump and dump scheme hurts investors. A shorting scheme can hurt investors and destroy the company.
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.
Like what
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.
Enron is one of the most famous examples: https://www.finance-monthly.com/2017/10/the-top-10-greatest-...
This is the truth shortsellers are not just bad, like All Long buyers are not all good..
How does shorting destroy a company destroy it?
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.
Shorting a company itself isn't so bad. Orchestrating bad PR to boost your short option earnings is bad.
> 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/luckin-co...
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/luckin-co...
No? You're not complicit with fraud if you suspect someone of fraud but don't go public with your suspicions. I don't think that's up for debate at all tbh.
Huh? You think there's a duty to publicly call out mere suspicions of fraud? I would argue there's the opposite -- people are hesitant to go public with any accusations because of the very real threat of being sued for defamation/libel.
There are very few true obligations to report in the US. All I'm aware of are tied to specific occupations/licenses.
There are very few true obligations to report in the US. All I'm aware of are tied to specific occupations/licenses.
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_Insider_T...
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_Insider_T...
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.
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.
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
You also benefit from harming its competitors.
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 :)
mdoms(1)
> the ones who attempted illegal shorts
[citation needed]; is this actually true or is this just part of the WSB sales pitch?
[citation needed]; is this actually true or is this just part of the WSB sales pitch?
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.
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.
> 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.
No they didn't. Naked short selling is different from short selling while the short interest is high.
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.
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.
> 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?
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?
> 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.
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.
> 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.
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.
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.
Oh yes, definitely. There are a lot of regulations for market makers.
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.
It may be in the national interest to impose "reserve requirements" on brokerages in order to prevent too much perversion of market prices.
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...
[1] https://en.wikipedia.org/wiki/Enron_scandal#Timeline_of_down...
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.
You can still get a short interest above 100% without selling naked calls/shorts.
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.
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.
> 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.
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.
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.
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.
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.
https://news.ycombinator.com/item?id=25962906
Or the suicide from the kid who didn't understand his position wasn't actually extremely negative.
The unfortunate story with the kid was RH showing him (temporary) correct information.
In any case it always comes back to argument if general public is suitable to participate in the market which in turn brings in more legislation to keep retail market far away from Wall Street.
If his position was not substantively very negative, then it was not correct to represent position as very negative. (Even if he was waiting for an asset to settle, that has a positive value that should have canceled out any negative.)
The fact that it's "normal convention" to represent positions this way is a problem with the convention, not with retail investors.
The fact that it's "normal convention" to represent positions this way is a problem with the convention, not with retail investors.
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.
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.
Short-selling is a way to profit off of a company's fall. It sounds morally wrong, but it also allows someone to put their money where their mouth is and gamble on a company's loss, with the risk being that they lose money if the company ends up succeeding.
Of course, it creates a perverse incentive. A short-seller who is invested in a company's failure will spew tons of FUD around the company, whether it's true or not. TSLA used to be one of the most shorted companies on the market, and many bloggers that were highly critical of Tesla were short-sellers, and the noise it created made it difficult to figure out how bad the problems were.
> Seems like a way to gamble legally in all 50 states.
You could say the exact same about long positions, which is nothing more than gambling on the success of a company, the same way a short is a gamble on the failure.
Of course, it creates a perverse incentive. A short-seller who is invested in a company's failure will spew tons of FUD around the company, whether it's true or not. TSLA used to be one of the most shorted companies on the market, and many bloggers that were highly critical of Tesla were short-sellers, and the noise it created made it difficult to figure out how bad the problems were.
> Seems like a way to gamble legally in all 50 states.
You could say the exact same about long positions, which is nothing more than gambling on the success of a company, the same way a short is a gamble on the failure.
Short selling is absurdly risky, but selling put options should probably remain allowed.
Probably? Selling short a put is long the stock.
I'm glad we aren't creating SEC rules based off of peoples' feelings.
I'm glad we aren't creating SEC rules based off of peoples' feelings.
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.
Incidentally affecting the market is not market manipulation...
Their incompetence is the direct cause of the tanking of a stock.
Even if it wasn't intentional, it was artificial.
Even if it wasn't intentional, it was artificial.
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.
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.
Which firms attempted illegal short selling, and what is your specific evidence to support that they did?
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.
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.
>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?
Okay, what's the evidence of illegal shorts?
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.
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.
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.
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.
It's definitely possible.
https://en.wikipedia.org/wiki/Naked_short_selling
https://en.wikipedia.org/wiki/Naked_short_selling
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.
> 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.
> In May 2012
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?
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!"
The "Regulatory enforcement actions" section lists a number of cases that "require[d] a licensed broker to break the law".
It's quite clear naked short selling is possible and thus happens sometimes. I'm very dubious it's the case in Gamestop's specific situation. My specific claim is "naked short selling is a thing that exists", which is readily provable.
It's quite clear naked short selling is possible and thus happens sometimes. I'm very dubious it's the case in Gamestop's specific situation. My specific claim is "naked short selling is a thing that exists", which is readily provable.
Robinhood created this problem for themselves by not clearly communicating what was going on as it was happening. Plenty of other brokers ran into capital requirements issues and explained what was happening in real time. Robinhood didn’t and so they let internet conspiracies fill the void.
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.
The hedge fund shorts were irresponsible but I don't think there exists any credible argument that they were illegal.
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.
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.
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?encryp...
Making Robinhood just less bad than the rest.
[0] https://piper2.bluematrix.com/sellside/EmailDocViewer?encryp...
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.
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.
Right, because that other side of the trade is purposefully trading against this bought flow thinking they can earn more opposed to competing with institutionalized investors.
Isn't this something almost all brokerages do?
https://efipm.medium.com/zero-commission-brokers-selling-ord...
https://efipm.medium.com/zero-commission-brokers-selling-ord...
> 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.
Then RH can sue them. As the consumer interface, the buck either stops with them, or they pass it along.
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.
I'd genuinely shocked to see someone say they think Robinhood didnt do anything wrong. Unless I'm misunderstanding you.
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.
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.
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.
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.
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.
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.
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.
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.
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.
> the deposit requirement was raised to 100%.
the question becomes - who/what had the power to raise this deposit ratio, and did parties that would stand to lose a lot if GME continued to rise had influence in making this deposit requirement higher?
the question becomes - who/what had the power to raise this deposit ratio, and did parties that would stand to lose a lot if GME continued to rise had influence in making this deposit requirement higher?
The DTCC raised the requirement, and my understanding is that these requirements are generated formulaically; not publicly available, but is based on volume, volatility, etc of the individual underlying assets, and how exposed specific institutions are to that volatility.
The DTCC wouldn't care one way or another if GME went up or down. They're goal is to make sure that different parties are able to settle their obligations with a very high degree of certainty, and ensure that investors won't lose their money with solvent brokerage firms or other intermediaries.
If you're arguing that the DTCC is beholden to the whims of a (relatively) miniscule hedge fund, you're crossing into conspiracy theory territory.
The DTCC wouldn't care one way or another if GME went up or down. They're goal is to make sure that different parties are able to settle their obligations with a very high degree of certainty, and ensure that investors won't lose their money with solvent brokerage firms or other intermediaries.
If you're arguing that the DTCC is beholden to the whims of a (relatively) miniscule hedge fund, you're crossing into conspiracy theory territory.
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?
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?
>But you shouldn’t be able to coordinate “short attacks” or use other tactics.
https://www.institutionalinvestor.com/article/b1qdq0y5b79rzb...
https://www.institutionalinvestor.com/article/b1qdq0y5b79rzb...
I'm not saying they used that tactic - but that the use of such tactics shouldn't be allowed.
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.
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.
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.
> ETFs should exist.
i assume you mean passive index investing (via the instrument called ETF).
And no, it won't eliminate price discovery unless there's some 80-90% of the transactions that is only passive. And if that's the case, an enterprising active manager would spot this discrepency, and profit from the abitrage.
So in effect, passive investing is piggy-backing off the price discovery of active managers, and this reaches a balance.
i assume you mean passive index investing (via the instrument called ETF).
And no, it won't eliminate price discovery unless there's some 80-90% of the transactions that is only passive. And if that's the case, an enterprising active manager would spot this discrepency, and profit from the abitrage.
So in effect, passive investing is piggy-backing off the price discovery of active managers, and this reaches a balance.
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.
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.
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.
Being the retail face of a complex industry apparently results in you getting blamed for the complexity.
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.)
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.)
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.
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.
So ready for only 2 days?
did you check under your Account->Documents? They posted my 1099 mid-February.
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.
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.
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.
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.
I imagine very few have any merit.
The far more damaging aspect is commercial: they're no longer the darling of r/WSB.
The far more damaging aspect is commercial: they're no longer the darling of r/WSB.
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.
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.
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 ?
Does the Robinhood TOS not require arbitration to settle disputes with users?
trestenhortz(4)
.. and almost ten ongoing movie, television and documentary projects about the GameStop fiasco
Why fiasco?
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.
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.
It was in no way arbitrary.
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...
- 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...
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.