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Analysis: Robinhood protected from lawsuits by user agreement, Congress
- elliekelly 6y agoI am cautiously optimistic that this issue (which seems to have drawn “outrage” from both sides of the political spectrum) will spur some change with respect to contracts of adhesion that force arbitration and prohibit class action suits. It’s nearly impossible to hold a corporation accountable for wide-spread anticonsumer behavior in any meaningful way so long as they can tuck those two paragraphs into a massive contract most people don’t read and even fewer will understand.
- caseysoftware 6y agoOn the arbitration front, check out the situation with IndieGoGo and now Patreon. A large number of people acting in concert can fight back against them without going to a class action lawsuit (which are banned anyway). A few years back, the MO for companies was to require arbitration, not participate, and then let it linger forever. California changed the law recently (2019?) where if the company doesn't respond, they "lose" according to JAMS rules. * I participated in the IndieGoGo arbitration process. Our fee was $250 while theirs was uncapped with most (public) estimates being in the $10-12k range. With a few hundred people, it starts turning into real money for them.
- andrewflnr 6y ago> where if the company doesn't respond, they "lose" Ah, that sounds like something that should go nation-wide.
- pixl97 6y agoHa, I was wondering why there was so much California hate from businesses. This explains some of it.
- andrewflnr 6y agoIME it's more stuff like the $800/yr franchise tax.
- kleton 6y agoRobinhood's vulnerability is their forced arbitration clause in the ToS. Similar to Doordash: https://www.vox.com/2020/2/12/21133486/doordash-workers-10-million-forced-arbitration-class-action-supreme-court-backfired https://www.vox.com/2020/2/12/21133486/doordash-workers-10-m...
- jcranmer 6y agoIf I read Robinhood's ToS correctly, you agree to not arbitrate any claim you bring up in a class action lawsuit.
- Natsu 6y agoWho is "you" here? The lead plaintiff is the only one taking it to court and everyone else has the option to opt out if they so desire.
- protomyth 6y agoThat's actually the problem. Each separate arbitration costs them a bunch of cash. If you run a startup in CA, you might want to look at this language because it could get you in trouble. A class action would probably be cheaper.
- tgsovlerkhgsel 6y agoAnd if there is something their current user base is good at, it's coordinated mass action. So if this is possible, I expect tens of thousands of arbitration cases to be filed by Monday.
- ericmay 6y agoRobinhood won’t go out of business because of lawsuits, it’ll be an exodus of users. Even if they just weren’t prepared and everything they did was legitimately the right thing to do, that ship has sailed. I know people I didn’t even know had a Robinhood account ask me if I was shutting my account down too. This will be fascinating to watch. Can the repair the brand damage? I’m skeptical. Is there any similar scenario that has occurred at another brokerage firm in the past that might leave clues to examine to understand potential user actions here?
- kleton 6y agoEach FINRA arbitration case would be expected to cost the company up to 10,000 in fees. If anywhere near the 100,000 users who left negative reviews on the Google Play store for the app file an arbitration and pay the filing fee, Robinhood will absolutely go bankrupt. If you are/were a Robinhood user: https://www.finra.org/arbitration-mediation/initiate-arbitration-or-mediation https://www.finra.org/arbitration-mediation/initiate-arbitra...
- notyourwork 6y agoSubmitting a negative review is a lot less effort than dealing with a court case. I think it’s unlikely a small percentage of 100,000 will pursue.
- mdorazio 6y ago"It will be hard to prove users suffered as a result of Robinhood’s measures because GameStop and other stocks covered by the curbs fell sharply on Thursday after the restrictions were announced, said James Cox, a professor at Duke Law School." Wait, what? Can anyone legitimately make the claim that the massive drop in value that cut off the price rise at the knees and allowed the worst short positions to cover their losses sub-$200 didn't materially harm the users? This is absolute madness.
- gruez 6y agoProbably because those are theoretical losses. The previous paragraph is also relevant: >However, Robinhood is not legally bound to carry out every trade and the lawsuits will not succeed without evidence the company restricted trading for an improper reason, such as to favor certain investors, according to several legal experts. As mentioned in other threads, robinhood wasn't able to come up with the deposit needed for their customers trades. In that case I don't see how it's any different than a service outage causing you to lose money, but you don't have a SLA in place.
- Alex3917 6y ago> As mentioned in other threads, robinhood wasn't able to come up with the deposit needed for their customers trades. That's not true, they only blocked trades on those specific stocks. If it was really a liquidity issue then they could have rate limited all trades equally regardless of the stock in question.
- MattGaiser 6y agoThose particular stocks had their deposit requirements increase, not all stocks.
- Anon1096 6y agoThe deposit requirements on those stocks were increased from 2% to 100%.
- gruez 6y ago
- Simulacra 6y agoForced arbitration has always felt grossly unfair, but for the sake of argument, I'll consider the contrapositive. A company that is in a highly litigious industry may feel that lawsuits would eat up valuable time and resources, and that those lawsuits are not always filed in good faith. Perhaps the industry or subject matter is complex, and not easily understood by juries, courts, etc. From a business perspective forced arbitration makes perfect sense: It limits exposure, limits judgement amounts, and perhaps is more predictable than trials. All that sounds good from the business perspective, but my problem has always been that the outcomes seem tilted grossly in favor of the company. Like Human Resources, it's there for the company, not the employee/consumer, and its the companies that have to pay for the arbitration. Banning them does not seem like a long term solution, although I support it, so I'm curious what alternatives may exist that could accomplish both.
- jedberg 6y agoI'm not sure why this article talks about reddit at all. I'm not aware of anyone suing reddit or even considering it (unless the hedge funds plan to do so?). It seems like they just wanted an excuse to write an article about Section 230, or had already written it when it was a big topic earlier in the month and wanted to use what they wrote elsewhere. :)
- dang 6y agoOk, we've deredditized (unreddited?) the title above. Good catch.
- deleted 6y ago[deleted]
- lucasyvas 6y agoCan anyone with Robinhood confirm what kind of agreement this is? Is it just a EULA? Obviously IANAL, but I cannot see how such agreements are legally binding if they don't even require a signature. In a theoretical world where I had to sign a EULA, I'd never sign any of them and I imagine most people wouldn't either.
- tzs 6y agoIf it were Robinhood suing users users over their terms or user agreement, then arguing that there is no contract might be a good defense. This is the other way around. It is the users suing Robinhood claiming that Robinhood violated the contract by not making the trades. If the users established that there is no contract, they would destroy the foundations of their own case.
- andrewflnr 6y agoWho is trying to sue Reddit for this? Bringing them up just sounds like building a case for repealing Section 230 of the DMCA, which would be a disaster but nevertheless seems to have bipartisan support.
- lucasyvas 6y agoI'm all for it at this point - it will push to decentralized infrastructure, which the Internet was meant to be in the first place.
- scsilver 6y agoDecentralized infrastructure with equal access is the solution to avoiding legislation here, people should be able to access the public forum and markets and companies should have the right to not associate with individuals not protected by human rights laws. Technology can solve this, and we are seeing money being spent towards this decentralization flooding towards building it just in 2021 alone. Interesting to see how a battery of solar houses + starlink + a drone port could allow decentralized communes to start popping up.
- andrewflnr 6y agoI think this will not go the way you want it to. Powerful interests will certainly portray decentralized communication tools as refuges of terrorists and child predators. They may even succeed in passing legislation that targets them. It will be easier if they're riding high on the momentum of successfully "striking at bad actors, forcing them to flee to other platforms" by repealing 230. "All for it" is a good zinger, but a bad plan.
- mancerayder 6y agoI have mixed feelings about this. On the one hand, I'm upset that centralized control led to big tech being able to so easily squash ideological competition (Parler and NY Post, and I am no ally of these, as well as stuff on the left and many individuals), and I want to see some sort of government whip-cracking. On the other hand, if they repeal 230 and everyone is afraid of lawsuits, then you'll see comments disappear everywhere, content disappear everywhere, freedom to publish diminish, and not platforms but content itself be centralized to that which is 'approved.'
- 9985479945_ 6y agoThis makes sense. Financial terrorism cannot be tolerated
- Daho0n 6y agoBut it is on wall street every weekday.
- relaunched 6y agoRobinhood would be liable for any margin accounts that were unable to settle their balances by the end of the allotted term. It's very reasonable that they restricted trades based on their liability. Did it have the deleterious affect of negatively impacting anyone long on the stock, probably. But, was that the primary rationale? It'll have to come out in discovery.
- why_Mr_Anderson 6y agoIn Europe, mandatory arbitration are usually unlawful. European Union Council Directive 93/13 on Unfair Terms in Consumer Contracts creates a rebuttable presumption that pre-dispute arbitration clauses in consumer contracts are invalid. The reason is the unequal bargaining power between the contracting parties in consumer contracts.
- LatteLazy 6y agoI don't necessarily support forced arbitration but... I would rather not pay the court fees because a bunch of people are upset their broker didn't accept their orders and want to waste the courts time over it.
- oblio 6y ago> I would rather not pay the court fees because a bunch of people are upset their broker didn't accept their orders and want to waste the courts time over it. I like how you trivialize it. Didn't they lose a ton of money, potentially their savings, because "their broker didn't accept their orders"? Repeat that several times in your head, how does it sound?
- LatteLazy 6y agoYou're right that I'm trivialising it, and everyone has a right to a hearing. This case will be a waste of time though. The broker has to offer best efforts, but if something goes wrong and they can't execute the order then that's tough. Even if that weren't true, this case hinges on whether those orders would have driven the price up (it didn't move much either way AFAIK). So to make the case, the class have to collectively admit to market manipulation. RobinHood stopping them was like a taxi driver refusing to drive robbers to the bank, the robbers don't get to sue when their dastardly plot is foiled! Or they can sue, but they'll lose and open themselves up further to prosecution!
- dancemethis 6y agoThis headline writing pattern is goshdarn atrocious.
- abotsis 6y agoWhy? Surely them blocking buys for any individual (or even small group of them) is within their rights per their customer agreement. But blocking them en masse is market manipulation, and their tos isn’t going to protect them from that.
- 542458 6y agoMy understanding is just because something meets the layman definition of, say, “market manipulation” doesn’t mean it meets the legal definition of that. This also applies to things like recklessness - the legal definition and the layman definition are different. Furthermore, AFAIK it’s not that something like “market manipulation” is illegal - it’s usually more complex than that, and might only be illegal under circumstances XYZ. It’s tempting to read laws as if they’re written in plain English, but it’s really more like a specialized dialect where words and phrases have different (and often complex) meanings.
- austhrow743 6y agoMarket manipulation requires intent to artificially change the stock price. It isn't everything that changes the stock price otherwise any large organisation or person with clout would be constantly market manipulating all day long.
- peterthehacker 6y agoThe argument that Reddit/WSB users manipulated the market is a more difficult one to make vs. the argument that RH manipulated the market when they restricted their users to only sell GME. If they stopped both buying and selling then GME would not have dropped the way it did. RH CEO’s denial said they made the move to protect the firm and their customers, but blocking buying and selling would’ve given them the protections without the risk of causing a change in the price. So it’s hard to believe that RH’s intent was anything but pushing the price of GME down to cover their customer’s short position.
- austhrow743 6y agoThat reddit/wsb didn't market manipulate is in no way an argument for robin hood having market manipulated. Again, it's fine to do things that cause stock prices to move. That robin hood could have reduced their functionality further in order to affect the stock price less is not relevant. If they have some duty to go out of their way to minimise their impact on stock prices, its above and beyond regular market manipulation.
- Cambro320 6y agoSEC regulations will override any user agreement where Robinhood is required to provide fair trade execution services
- alacombe 6y agoThere is obviously no political will to go after them.
- awillen 6y agoWhy can't non-Robinhood holders of GME sue Robinhood, though? If you can prove that RH's actions drove the stock down, then aren't they the victims (and also not bound by the user agreement)?
- gruez 6y ago>If you can prove that RH's actions drove the stock down That'd at best, prove harm, which is a necessary but not sufficient condition for a successful lawsuit. You'd also need to prove wrongdoing, which is hard because they seemed to have acted so they can fulfill their deposit requirements.
- awillen 6y agoAssuming that's true - the big issue is that Vlad said very clearly that they did not have a liquidity problem. You can't say that you're restricting deposits because the clearinghouses require you to put up more cash then immediately follow that by saying you have plenty of cash.
- nceqs3 6y agoEverything is securities fraud - Matt Levine
- alacombe 6y ago> Everything is securities fraud, as long as there is political will to prosecute FTFY
- tempsy 6y agoThe fact that they’ve not only limited trading in GME but low volatility name like Starbucks to 1 share is ridiculous. If the only outcome out of this is collective realization about issues with Section 230 or forced arbitration that is a positive whether this class action becomes anything or not.
- hundreddaysoff 6y agoA second collective realization I'd like to see is that the SEC is still using the same faulty Value-at-Risk model they were using before the 2008 crash to estimate clearing funds. They should probably not use this model to do this any more. See https://www.sec.gov/rules/sro/nscc-an/2018/34-82631.pdf https://www.sec.gov/rules/sro/nscc-an/2018/34-82631.pdf and explanation at https://twitter.com/MKM_Abdul/status/1355310540235579395 https://twitter.com/MKM_Abdul/status/1355310540235579395
- tengbretson 6y agoI checked the Robinhood tos and it looks like they have a forced arbitration clause anyway. I'm not sure why the class action efforts thought they could get anywhere. That said, I'm pretty sure you could make Robinhood fold if the users all bombed them with arbitration filings.
- stevespang 6y agoOne strategy that 1st year law students are all aware of: ANY contract that is one sided, where ALL participants are not allowed to participate in negotiating the contract - - and especially without all sides being represented by an attorney - - are known as UNCONSCIONABLE, and prone to be set aside in court. (without good conscious, or predatory). All these High Tech TOS's meet that standard of UNCONSCIONABLE
- 8ytecoder 6y agoThis thread is full of people who have no idea how the exchanges, brokers, clearing firms and clearing houses operate. https://www.bloomberg.com/opinion/articles/2021-01-29/reddit-traders-on-robinhood-are-on-both-sides-of-gamestop https://www.bloomberg.com/opinion/articles/2021-01-29/reddit...
- LatteLazy 6y agoIt's very disappointing. I don't expect people to know these things. But on HN, I'd expect them to ask or listen or read about it. Instead people just post about how it's a big finance conspiracy and how they're going to sue everyone...
- _trampeltier 6y agoI don't trade stocks at all, I just played a bit around with crypto for some years. For me it seems, as traditional stock exchanges looks like in stone age compared to the crypto world, when I really need days to make the deal in the background. Also then I don't understand how it needs one one side days to make the deal and on the other side there exist HF traders, who do many, some say as many as 1000 trades per second, maybe, I don't know .., but how does this work. I remember some years ago, a normal banc transfer needed always 3 working days (so 5 over the weekend). Then came the crypto hype and the time dropped to less than a hour, even for normal people. I wonder if we see something similar here in future. Also some crypto trading platforms, started to trade with stocks in different forms. I wonder how this will play out in future. I think traditional exchanges have to move forward fast now.
- LatteLazy 6y agoI agree broadly. I think it's just institutional momentum. We could do settlement within minutes for 99% of trades. The only reason we haven't is because 100+ years ago people though 2 days (T+2) was quick and we haven't updated it. The EU is gradually forcing its members to do T+1 and eventually (I think decades in the future) wants same day for most products. That reduces risk and it makes the market fairer (RobinHood have had cash flow problems they wouldn't have had with T+0 settlement and the big boys don't have to worry about that). I guess we have to wait. Some of these places are still using COBOL, a language first introduced in 1959!? That's how complex, legacy, under invested etc many back office setups are.
- dmw_ng 6y agoThese complaints need to reframed in terms of the sellers of the extremely underpriced call options that triggered the insane volatility in the first place. There are only a tiny number of companies responsible, possibly as few as one Robin hood users certainly weren't clicking around a UI buying stocks fast enough to cause the incredible moves witnessed, that could only be the action of the option market makers attempting to hedge options they'd sold to those users with a notional value vastly exceeding available liquidity
- powerapple 6y agoNow I see the value of Bitcoin and Ethereum. Can we build an exchange on Ethereum? Maybe handling high number of transactions will still be a problem. Can we accept the delay for the benefit of decentralization?
- pfortuny 6y agoThis is not a “user-based” restriction (which I guess is what the law intended to mean) but a wholesale restriction without per-customer reasoning, without notice and without equivalent counterpart (they did not block selling)... At least it is worth looking into.
- azinman2 6y agoThey may be protected from lawsuits, but they won’t be protected from the loss of users. I predict a sizable exodus of the platform.
- tommoor 6y agoThey were gaining _millions_ of new users a day this week. I'd highly doubt the number of people closing accounts will be greater than this.
- Triv888 6y agoI'm glad I left RH about a month ago because I didn't even suffer from their non-sense (I left 2 weeks after I signed up). I left them because I didn't like their website/interface.
- gutino 6y agoYou can not overwrite a law by making anybody signup user agreement. This was clearly a stock manipulation played in our faces, no need o prove anything. Only left is to see if the justice exist in EEUU.
- jerry80 6y agoYes, and the manipulation doesn't only affect Robinhood customers.
- MisterSandman 6y agoThis. It didn't just impact RH users, it impacted the stock price as a whole. Anybody who was holding the stock should be able to join the class action.
- thunkshift1 6y agoWhoa.. if that logic holds, it’ll be game over for almost all brokers who stopped trading.
- Triv888 6y agoFuck congress, reddit, robinhood and others for trying to keep rich people rich.
- NicoJuicy 6y agoCan someone explain the following to me. Normally brokers block all trading ( buying/selling). But only blocking buying it, seems manipulation to me.