Lower than per week into the brand new 12 months, a 27-year-old truck driver from Connecticut may need given Robinhood
an entire new factor to be apprehensive about in 2022.
On January 6, an arbitrator for the Financial Industry Regulatory Authority dominated that the zero-commission buying and selling platform was accountable for $29,460.77 in compensatory damages to Jose Batista, a retail investor who filed a criticism with the trade self-regulator in Might, alleging that he had suffered important funding losses as a result of Robinhood’s resolution to limit buying and selling on sure meme shares on the top of January 2021’s manic brief squeeze.
The judgment is the primary of its type to finish with Robinhood paying cash to a retail investor stemming from its buying and selling restrictions, and will present a blueprint for different particular person merchants hoping to get aid from Robinhood.
For starters, Batista’s case in opposition to the $13 billion on-line dealer was slender and particular, selecting to concentrate on how the restrictions impacted his shares in headphone maker Koss
and trend model Categorical Inc.
versus his entire portfolio.
“I do not forget that day, it was life-changing for me,” recounted Batista in an interview with MarketWatch. “I used to be simply day-trading, simply making an attempt to catch momentum.”
Batista stated he additionally was buying and selling in huge meme names like GameStop
on the time, however had no intention of promoting these, though he’d turn into keen to dump shares that he considered may need peaked.
“My plan was to promote Koss and Categorical that day,” stated Batista. “I had rather a lot, however nobody may purchase it.”
On January 27, the day earlier than Robinhood and different on-line brokers imposed buying and selling restrictions, Koss closed at $58 a share, and Categorical closed at $9.55.
Batista, who had entry solely to a Robinhood account on the time, grew more and more determined to commerce his shares in some frothy meme shares, totally conscious that traders most keen to purchase them at a premium merely couldn’t.
“They principally left me with no different choice,” Batista stated of Robinhood. “They have been saying ‘You’re simply caught. If you wish to promote it. Promote it.’”
On February 1, the day Robinhood reopened buying and selling on memes, Koss closed at $35 and Categorical closed at $5.
“It was powerful to observe,” Batista mirrored.
Not like seven different retail traders who’ve taken their grievances to the regulator up to now, Finra agreed that Batista’s expertise was too tough to be completely truthful.
The Connecticut-based public arbitrator, John James McGovern Jr., wrote in his finding that Robinhood’s two divisions, Robinhood Markets and Robinhood Monetary, have been “collectively and severally liable” for Batista’s losses.
For Batista’s lawyer, Jorge Altamirano, the money award has a bigger significance; displaying retail traders the proper option to take Robinhood to job.
“There was a number of noise about all the conspiracy theories,” Altamirano defined, referring to numerous civil fits that tried to show Robinhood colluded with its prime market maker, Citadel Securities, to limit buying and selling and shield hedge funds shorting meme shares. The Securities and Change Fee investigated such allegations and located them missing proof.
In line with their slender method, Altamirano and Batista didn’t have interaction with conspiracy theories concerning the buying and selling restrictions and caught totally to the main points of Batista’s case.
“Finra confirmed right here that they have been keen to adjudicate a case on the deserves,” stated Altamirano. “This opens the door for different traders to revisit that day [in January] and possibly take motion.”
The concept that Batista’s $30K may flip into one thing bigger — like a flurry of awards for damages that take a piece out of Robinhood’s authorized citadel — could also be an thrilling one for the legion of “Apes” nonetheless livid about January 2021, however not less than one skilled is taking a extra measured view of the scenario.
“There’s no precedential worth to this award, and Finra tends to go far and wide on these sorts of arbitrations,” cautioned Francis Curran, a securities litigation legal professional at Kudman Trachten Aloe & Posner.
Even so, Curran did see how a Finra arbitrator may need been compelled by the specificity of Batista’s declare, and that Robinhood, which Finra already fined a number of instances, together with with a document $70 million penalty in June 2021, harm the form of unsophisticated dealer it was designed to draw, together with when it helped gas after which pulled the plug on the meme-stock short-squeeze.
“I believe it’s too quickly to inform if it’s the primary of a development,” Curran stated. “But it surely’s actually received to catch Robinhood’s consideration.”
And that spotlight already has turn into slightly scattered in current months.
Robinhood, which declined to touch upon this story, has confronted a plunging inventory value since its July IPO, elevated competitors, and chronic issues that the SEC would possibly change the principles round cost for order stream in 2022, threatening a big a part of its enterprise mannequin.
One sign of how 2022 is shaping up is perhaps a deeper take a look at Batista himself.
Whereas $30K would possibly look like a paltry sum to Robinhood, it’s actual cash to Batista, who stated it would go a good distance to assist assist his younger household, along with his trucking earnings, whereas he additionally continues to speculate available in the market.
“I’m undoubtedly going to proceed to commerce,” stated Batista, who maintains a vestigial Robinhood account however now largely trades on a competing app, Webull. “These aren’t meme shares to me. I simply watch the momentum. I’ll take 10 shares and watch all through the day.”
Talking of meme shares…
Just like the markets, each GameStop and AMC Leisure
bounced again from big drops in early buying and selling, however with very totally different outcomes.
Whereas AMC managed to largely undo a 7.4% morning drop to shut down 0.9% on Monday, GameStop needed to reverse a 14.2% morning plummet and completed the session down 6.7%.
It was the identical story for many memes on the day, aside from the MAGA meme crowd.
Shares in so-called “Trump SPAC” Digital World Acquisition Corp
climbed 3.6% on the day, driving an enormous afternoon bounce for the Nasdaq and the…distinctive funding thesis of its backers.