Lawsuits continue to mount against an online stock trading platform Robinhood after its services were interrupted several times this month, causing users to potentially miss huge stock market gains.
According to court records, at least seven lawsuits have been filed in federal courts, five of them in the Northern District of California. Robinhood is headquartered in Menlo Park, Calif.
Plaintiffs Eric Johann and Leila Kuri echo previous claims in the most recent lawsuit filed March 18. The pair say they were relying on Robinhood and its failure caused him to miss out on substantial market gains.
The stock market has endured wild swings up and down during March, which has tested Robinhood’s ability to deliver consistent service amid high-volume traffic.
On March 2, the Dow Jones Industrial Average rose over 1,294 points, the S&P 500 rose 136 points, and the Nasdaq rose 384 points in the biggest point gain in a single day in history.
Robinhood, which launched in 2015, offers a mobile app and website allowing users to invest in stocks, ETFs, and options through Robinhood Financial and crypto trading through Robinhood Crypto. The company has no storefront offices and charges no fees.
Robinhood reports about 10 million users and its main source of revenue comes from interest earned on customers’ cash balances and margin lending.
Shortly after the markets opened March 2, Robinhood experienced technical difficulties and the site was down the remainder of the day.
At one point during the day, Robinhood sent users an email: “This morning, starting at 9:33 AM ET, we started experiencing downtime across our platform. These issues are affecting functionality on Robinhood, including your ability to trade.”
It was not until 2:19 a.m. on March 3 that Robinhood announced on its Twitter account that, “Robinhood is currently back up and running. We’re testing through the night, and you may observe some downtime as we prepare for tomorrow.”
Johann, of New York, is a Robinhood account holder since June 2018. On March 2, he “attempted to close a call option position he had for a particular stock,” the lawsuit said. “He was able to sign into his account but was unable to enter any orders.”
Johann was unable to log on the following day either, the lawsuit said, adding that he lost “an estimated $15,000” due to the site being down.
On March 8, 2020, Johann tried to close his remaining option positions upon the opening of the market on March 9 and was unsuccessful, the lawsuit said. Again the following morning, the Robinhood site was unresponsive, the lawsuit said.
Johann “tried for several hours to cancel the order, but Robinhood ultimately fulfilled the order around noon, against his wishes and his attempted cancellations,” the lawsuit said.
During the outage, Kuri, of North Carolina, attempted to close one of her open option positions, but received a response indicating that her order was cancelled, against her instructions, the lawsuit said.
“She attempted to contact Robinhood’s customer support regarding her inability to execute trades, but received only unhelpful boilerplate responses,” the lawsuit said. “After encountering Robinhood’s inability to execute her orders, Plaintiff Kuri then attempted to withdraw her funds from her Robinhood account, but was unable to do so for several days.”
FINRA rules require that broker-dealers like Robinhood “must make every effort to execute a marketable customer order that it receives promptly and fully.”
“Robinhood violated that requirement by repeatedly and completely preventing its customers from executing trades during the system outages,” the lawsuit said.
In a March 3 blog post on Robinhood’s website, company co-CEOs Baiju Bhatt and Vlad Tenev addressed the initial outage.
“We now understand the cause of the outage was stress on our infrastructure—
which struggled with unprecedented load,” the post read. “That in turn led to a “thundering herd” effect—triggering a failure of our DNS system.
“Multiple factors contributed to the unprecedented load that ultimately led to the outages. The factors included, among others, highly volatile and historic market conditions; record volume; and record account sign-ups.”
The company has not commented since the March 3 blog post.
Johann and Kuri seeks damages and class-action status.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at email@example.com. Follow him on Twitter @INNJohnH.
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