NAPLES, Fla., Aug. 31, 2021 /PRNewswire/ -- The claim filed by Vernon Litigation alleges that Robinhood wrongfully imposed trading restrictions on Blackberry Ltd. (BB) earlier this year. Some of the details of the claim are set out below.
Cyber experts often warn that you should be wary of participating in anything offered for "free" in the high-tech world because it usually means that you are effectively being bundled up with others and turned into the product or service to be sold or otherwise exploited by the high-tech company. Robinhood is a great example of this abuse. Robinhood lures clients in with the offer of "free" services and, in turn, Robinhood bundles up the "free" trades of its clients and then sells the ability to make those trades to other financial firms who get paid to actually make the trades. Robinhood receives massive payments from these "principal trading firms" or "electronic market makers" for the opportunity to obtain Robinhood's customer order flow ("payment for order flows"). Although Robinhood asserts that it represents a change from the old ways that brokerage firms profit from their own client base, this payment for order flow that has enriched Robinhood is a very traditional Wall Street practice.
Since Robinhood launched its "free" trading platform and purported new way of doing business, payment for order flow has been its single largest source of revenue—with one market maker in particular, Citadel Execution Services, accounting for nearly half of the total payments Robinhood received from all market makers in 2020. Think of Robinhood as a middle man who takes the trading orders from its clients, bundles them up into lots of trades, and then gets paid by Citadel to allow Citadel to actually make those trades for a fee that comes out of the proceeds of the trade.
Against the backdrop described above, stocks in BlackBerry Ltd., began to rise earlier this year. This was in part due to Robinhood clients purchasing large numbers of shares of BB (and other heavily shorted stocks) which dramatically increased share prices and led to what is known as a "short squeeze." As a result of increased share prices and threat of potential loss, short holders began closing their short positions to prevent further loss and purchasing shares in case the broker who lent them required the shares back. Consequently, this resulted in the share price for BB stock going up even further.
Several large hedge funds and wall street investment firms, including Citadel Enterprise Americas LLC, Citadel Securities LLC, and Melvin Capital Management LP ("Melvin Capital"), were among the investors who had significant short positions in BB. As a result, these hedge funds were exposed to dramatic potential losses as BB continued to rise due to the trading of Robinhood customers and others. To protect these hedge funds (that were paying massive amounts of money to Robinhood for order flow), Robinhood abruptly prohibited its own clients from buying shares and exercising options of BB. Robinhood's halt in trading BB was not a general halt but a halt against buying that would exert upward pressure on the market in BB stock.
Given the nature of Robinhood's relationship with Citadel and other short sellers, Robinhood furthered its own interests at the expense of their own customers. In effect, Robinhood pushed the market price in the direction it wanted it to go for the benefit of Robinhood's real customers (the hedge funds and other electronic market makers), at the expense of its "free" customers who it exploited in traditional Wall Street fashion.
Based on the foregoing allegations, among others, the FINRA claim is now being pursued against Robinhood.
Vernon Litigation Group is a financial litigation law firm with offices in Naples, Florida and Buckhead, Georgia that represents clients in courtroom litigation, arbitration, including FINRA arbitration, negotiation, and mediation throughout the United States. Our lawyers have collectively represented hundreds of investors in financial disputes in arbitration and litigation nationwide and recovered many millions of dollars from purported financial professionals and financial institutions, both large and small. Please contact us to discuss your rights if you believe a financial or investment professional has failed to act in your best interests or otherwise abused your trust with respect to insurance products or other investment products or services. For more information, visit our website or contact us by phone at 1-877-649-5394 or by e-mail at info@vernonlitigation.com to speak with a representative of Vernon Litigation Group.
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Chris Vernon | 239-319-4434
SOURCE Vernon Litigation Group
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