Securities Arbitration Lawyer Blog
Partners August M. Iorio and Jorge Altamirano discuss Iorio Altamirano LLP’s groundbreaking arbitration award against Robinhood over the January 2021 trading restrictions and what the award may mean for retail investors.
Q&A:
When was the arbitration claim that led to the award filed?
The claim was filed shortly after Robinhood implemented the trading restrictions in January 2021. At the time, we received many calls from aggrieved “meme stocks” investors who wanted to discuss their legal rights.
Why was your claim successful?
Despite the noise and rumors surrounding Robinhood’s motivations for implementing the trading restrictions, we let the discovery and facts guide us. Ultimately, our case theory focused on Robinhood’s inadequate liquidity management practices and monitoring of its counterparty risk.
Additionally, we attacked, head-on, the notion that Robinhood’s customer agreement gives it unfettered right to restrict trading for any reason, at any time. We argued and still believe that it does not.
Was the claim filed under the standard rules for FINRA arbitration proceedings?
We filed the claim under the FINRA rules governing simplified proceedings for cases with losses under $50,000.
Our client was the typical Robinhood user: young, trading frequently, executing a short-term buy and sale trading strategy to capture stock momentum, and accessing the market from his mobile phone.
We were not focused on the loss amount involved in the dispute, but more so on our belief that the case had merit and that it was an important issue for a FINRA arbitration panel to assess liability on.
In the end, we were able to obtain a significant recovery for our client, well above his “actual” losses.
Why is the award significant?
We believe this is a significant victory for retail investors because it shows that FINRA rules and protections extend to all investors, including those who are younger and have self-directed accounts.
As the number of young, self-directed investors increase over the next few years on platforms such as Robinhood’s, it is important for them to know that if they are harmed, they can file an arbitration claim against online broker-dealers before FINRA, where their dispute will be adjudicated fully and fairly.
What is the takeaway for other similarly situated investors?
There is no rule that says future FINRA arbitration panels must follow the precedent of this award and reach the same conclusion that the arbitrator in this case reached. However, this award shows that there may be a potential road for investors to recover their losses and that online broker-dealers, like Robinhood, may be held liable even if the investor bringing the claim is young and is trading “meme stocks” on their own in their self-directed accounts.
Now, we know at least one FINRA arbitrator believes that Robinhood is responsible for that investor’s losses when it unilaterally restricted trading and use of its platform.
Have there been other awards for investors over the January 2021 trading restrictions?
Not that we are aware of. We reviewed the FINRA awards database online and confirmed that prior to our arbitration award, eight cases had gone to arbitration against Robinhood over the January 2021 trading restrictions. Robinhood had won all of these cases.
There are at least five other cases related to the trading restrictions against other online broker-dealers where claims were denied.
Most of these cases were filed pro se, which means that the investor did not have a lawyer representing them. Because of these cases’ complex nature and experienced counsel representing the financial institution, we always recommend that investors hire an attorney to represent them. Our firm represents individuals on a contingency fee basis, which means we do not collect a fee unless we obtain a recovery.
Our award is the first win for investors across the country in any forum.
Who should contact the firm?
Any Robinhood customers harmed by the firm’s decision to place trading restrictions on GameStop (GME), Koss (KOSS), Express (EXPR), AMC Entertainment Holdings (AMC), Nokia (NOK), Bed Bath & Beyond (BBBY), and other stocks pre-market opening on January 28, 2021, should contact the firm.
How is an arbitration claim different than a class action lawsuit?
A securities arbitration complaint is brought by an individual against a brokerage firm. The person who brings the claim (the Claimant) has complete control over settlement decisions. If the dispute is not settled, an arbitration panel will hear evidence and decide whether the brokerage firm is liable to the Claimant. The arbitration panel will also determine how much, if any, monetary damages are owed to the Claimant.
A class action complaint is a lawsuit filed in court by an individual on behalf of all like suited individuals. Individuals who are not class representatives do not have input on settlement decisions. Class actions can be dismissed for various reasons, and even if there is a recovery someday, class members often only receive pennies on the dollar.
How to Recover Losses or Obtain a Free Consultation
Contact FINRA arbitration lawyers August Iorio and Jorge Altamirano of Iorio Altamirano LLP at august@ia-law.com, jorge@ia-law.com, or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.