Less than a week into the caller year, a 27-year-old motortruck operator from Connecticut mightiness person fixed Robinhood HOOD, -1.76% a full caller happening to beryllium disquieted astir successful 2022.
On January 6, an arbitrator for the Financial Industry Regulatory Authority ruled that the zero-commission trading level was liable for $29,460.77 successful compensatory damages to Jose Batista, a retail capitalist who filed a ailment with the manufacture self-regulator successful May, alleging that helium had suffered important concern losses owed to Robinhood’s determination to restrict trading connected definite meme stocks astatine the tallness of January 2021’s manic abbreviated squeeze.
The judgement is the archetypal of its benignant to extremity with Robinhood paying wealth to a retail capitalist stemming from its trading restrictions, and could supply a blueprint for different idiosyncratic traders hoping to get alleviation from Robinhood.
For starters, Batista’s lawsuit against the $13 cardinal online broker was constrictive and specific, choosing to absorption connected however the restrictions impacted his shares successful headphone shaper Koss KOSS, -4.90% and manner marque Express Inc. EXPR, -1.97%, arsenic opposed to his full portfolio.
“I retrieve that day, it was life-changing for me,” recounted Batista successful an interrogation with MarketWatch. “I was conscionable day-trading, conscionable trying to drawback momentum.”
Batista said helium besides was trading successful large meme names similar GameStop GME, -6.73%, astatine the time, but had nary volition of selling those, adjacent though he’d go consenting to offload shares that helium viewed mightiness person peaked.
“My program was to merchantability Koss and Express that day,” said Batista. “I had a lot, but nary 1 could bargain it.”
On January 27, the time earlier Robinhood and different online brokers imposed trading restrictions, Koss closed astatine $58 a share, and Express closed astatine $9.55.
Batista, who had entree lone to a Robinhood relationship astatine the time, grew progressively hopeless to commercialized his shares successful immoderate frothy meme stocks, afloat alert that investors astir anxious to bargain them astatine a premium simply could not.
“They fundamentally near maine with nary different option,” Batista said of Robinhood. “They were saying ‘You’re conscionable stuck. If you privation to merchantability it. Sell it.’”
On February 1, the time Robinhood reopened trading connected memes, Koss closed astatine $35 and Express closed astatine $5.
“It was pugnacious to watch,” Batista reflected.
Unlike 7 different retail investors who person taken their grievances to the regulator truthful far, Finra agreed that Batista’s acquisition was too unsmooth to beryllium wholly fair.
The Connecticut-based nationalist arbitrator, John James McGovern Jr., wrote successful his uncovering that Robinhood’s 2 divisions, Robinhood Markets and Robinhood Financial, were “jointly and severally liable” for Batista’s losses.
For Batista’s lawyer, Jorge Altamirano, the currency grant has a larger significance; showing retail investors the close mode to instrumentality Robinhood to task.
“There was a batch of sound astir each of the conspiracy theories,” Altamirano explained, referring to assorted civilian suits that attempted to beryllium Robinhood colluded with its premier marketplace maker, Citadel Securities, to restrict trading and support hedge funds shorting meme stocks. The Securities and Exchange Commission investigated specified allegations and found them lacking proof.
In keeping with their constrictive approach, Altamirano and Batista did not prosecute with conspiracy theories astir the trading restrictions and stuck wholly to the details of Batista’s case.
“Finra showed present that they were consenting to adjudicate a lawsuit connected the merits,” said Altamirano. “This opens the doorway for different investors to revisit that time [in January] and possibly instrumentality action.”
The thought that Batista’s $30K could crook into thing larger — similar a flurry of awards for damages that instrumentality a chunk retired of Robinhood’s ineligible citadel — whitethorn beryllium an breathtaking 1 for the legion of “Apes” inactive furious astir January 2021, but astatine slightest 1 adept is taking a much measured presumption of the situation.
“There’s nary precedential worth to this award, and Finra tends to spell each implicit the spot connected these kinds of arbitrations,” cautioned Francis Curran, a securities litigation lawyer astatine Kudman Trachten Aloe & Posner.
Even so, Curran did spot however a Finra arbitrator mightiness person been compelled by the specificity of Batista’s claim, and that Robinhood, which Finra already fined aggregate times, including with a grounds $70 cardinal punishment successful June 2021, wounded the benignant of unsophisticated trader it was designed to attract, including erstwhile it helped substance and past pulled the plug connected the meme-stock short-squeeze.
“I deliberation it’s excessively soon to archer if it’s the archetypal of a trend,” Curran said. “But it’s surely got to drawback Robinhood’s attention.”
And that attraction already has go a small scattered successful caller months.
Robinhood, which declined to remark connected this story, has faced a plunging banal terms since its July IPO, accrued competition, and persistent concerns that the SEC mightiness alteration the rules astir outgo for bid travel successful 2022, threatening a ample portion of its concern model.
One awesome of however 2022 is shaping up mightiness beryllium a deeper look astatine Batista himself.
While $30K mightiness look similar a paltry sum to Robinhood, it’s existent wealth to Batista, who said it volition spell a agelong mode to assistance enactment his young family, successful summation to his trucking income, portion helium besides continues to put successful the market.
“I’m decidedly going to proceed to trade,” said Batista, who maintains a vestigial Robinhood relationship but present mostly trades connected a competing app, Webull. “These aren’t meme stocks to me. I conscionable ticker the momentum. I’ll instrumentality 10 stocks and ticker passim the day.”
Speaking of meme stocks…
Like the markets, some GameStop and AMC Entertainment AMC, -0.91% bounced backmost from immense drops successful aboriginal trading, but with precise antithetic results.
While AMC managed to mostly undo a 7.4% greeting driblet to adjacent down 0.9% connected Monday, GameStop had to reverse a 14.2% greeting plummet and finished the league down 6.7%.
It was the aforesaid communicative for astir memes connected the day, but for the MAGA meme crowd.
Shares successful alleged “Trump SPAC” Digital World Acquisition Corp DWAC, +3.58%. climbed 3.6% connected the day, riding a immense day bounce for the Nasdaq and the…unique concern thesis of its backers.