Will Robinhood Face Legal Action
In a statement, Cheryl Crumpton, assistant general counsel for litigation and enforcement at Robinhood, said the company remains committed to its actions, which she deems “appropriate and necessary to support our clients.” Since then, investors have taken the company to court, and while several lawsuits against it have been dismissed, there is one that has finally stuck. U.S. District Judge Cecilia Altonaga of the Miami District Court ruled that trading platform Robinhood must file a lawsuit over several stocks in last year`s meme stock rally. Robinhood is not facing charges of market manipulation when it temporarily prevented clients from buying certain shares in early 2021. The unprecedented events of 25. January changed Wall Street forever, and a company that was at the heart of it is still haunted by the role it played. Robinhood (NASDAQ: HOOD) has been accused of market manipulation when retail investors pumped out meme stocks like GameStop. Now, a Miami judge has ruled that these claims are valid, and Robinhood is facing the class action lawsuit against it. On January 29, 2021, Shumaker, Loop & Kendrick, LLP filed a second class action lawsuit against Robinhood in response to the company`s trading restrictions on various securities. The purpose of this lawsuit is to hold Robinhood liable and seek compensation for millions of potential Robinhood users who suffered losses as a direct result of these business restrictions. “The court has yet to make findings of fact or rule on the merits — and we will continue to defend ourselves vigorously on this issue,” Crumpton said. Some experts argue that the Robinhood User Agreement and Section 230 of the Federal Communications Decency Act of 1996 likely protect the brokerage application from legal liability;6 Nevertheless, the company will spend significant time and resources defending the sudden barrage of lawsuits, said Marvin Cigarroa, professional liability broker, Burns & Wilcox, San Diego.
California. Judge Altonaga also rejected retail investors` allegations that Robinhood was negligent and failed in its duty, as well as the claim that Robinhood conspired to stop a short pressure. Meanwhile, the company says it believes the actions it took were “appropriate and necessary.” A hedge fund or venture capital firm could put itself at risk by investing in a company whose future is uncertain, Cigarroa said. “When a company experiences a significant negative event, its institutional investors face potential losses,” Cigarroa said. “When this happens, hedge funds and venture capital firms face questions from their investors. It`s a domino effect. Robinhood suspended purchases of GME and other shares, but later resumed them after exponential asset growth, putting the trading platform in the middle of a battle between retail investors and large hedge funds that short sell stocks. Thousands of users have left one-star reviews for Robinhood`s app on the Google Play Store, the platform has shelved its plans for an IPO in the U.S., and individuals have filed several class action lawsuits alleging Robinhood bowed to the interests of the hedge funds involved, given its ties to Citadel and Melvin Capital. U.S. District Judge Cecilia Altonaga in Miami said in the ruling that investors in GameStop Corp (GME. N), AMC Entertainment Holdings Inc (AMC. N) and seven other actions can bring a class action lawsuit alleging that the restrictions artificially lowered share prices.
Directors and officers insurance for publicly traded companies generally does not cover the defence costs incurred by the corporation itself, except in the case of a lawsuit brought by a shareholder. For private companies, however, D&O Insurance is expanding coverage for legal fees, Cigarroa said. Antitrust costs are generally included in the professional liability insurance of private companies, unless a specific antitrust exclusion is specified in the policy. Online and app broker Robinhood is facing at least 34 class action lawsuits late last month for blocking the purchase of shares of GameStop and several other so-called “meme shares” like AMC Entertainment and BlackBerry late last month. The temporary halt to buying some stocks came after amateur traders stunned Wall Street with a coordinated effort to drive up the stock prices of troubled companies, resulting in massive losses1 for hedge funds that discovered those companies` shares. Despite the decision, the company is maintaining its shares, said Cheryl Crumpton, Robinhood`s assistant general counsel for litigation. “It`s common for everyone in senior management positions to be named in lawsuits,” she said, noting that company executives may choose to invest in individual liability insurance to protect themselves from actions that affect the boards they sit on. Financial services firms can also choose a form of coverage known as Fidelity FI (financial institution) bonds, which help cover costs in case a company engages in fraudulent business practices, Schaaf said. In addition to allegations of market manipulation, Robinhood also faces allegations that it violated federal securities fraud law. “The D&O insurance market is tough right now,” Cigarroa said. “For D&O policyholders, controversies and court challenges can set off red flags.” In fact, Robinhood has faced legal issues in the past.
In December, the company agreed to pay $65 million to settle allegations by the U.S. Securities and Exchange Commission that it had misled customers about revenue streams and failed in its duty to seek the best terms for its users.12 Recently, on February 8, an unlawful homicide lawsuit was announced against the company. filed by the family of a 20-year-old trader who allegedly committed suicide because he mistakenly believed he owed $730,165 after having a negative balance on his Robinhood account.13 Robinhood blocked the purchase of several securities, the price of which was boosted by a gathering of Reddit`s WallStreetBets community on September 28. January 2021, citing market volatility, which allowed clients to sell their positions in the affected stocks.