American financial services company Robinhood Markets Inc. has reportedly agreed to settle a class-action lawsuit that was filed by customers after the investment app witnessed an outage in March 2020, further shutting them out of trading during a pandemic-induced uncertainty.
During the pandemic, the California-based startup, that marketed itself as one democratizing finance, benefited from a rise in interest in trading stocks from retail investors, but customers claimed the app failed to deliver on its promises.
The case was part of a wave of lawsuits following Robinhood’s temporary ban on customers buying certain popular stocks, such as GameStop Corp and AMC Entertainment Holdings Inc, as their value skyrocketed during the social-media-fueled rise.
The complaint filed in San Francisco claimed that interruptions from Robinhood caused consumers to lose money because they were unable to trade. Users sued Robinhood for negligence, breach of contract, and other charges, including breaking California's fair business rules.
However, the federal court in Miami's Chief Judge Cecilia Altonaga found that individual investors cannot sue Robinhood for negligence or violation of fiduciary responsibility, citing the commission-free brokerage's user agreement, which permitted it to limit trading.
Customers of Robinhood along with traders who suffered losses on GameStop, AMC, and 11 other stocks were paid for the damages done. While it appears that Robinhood is satisfied with the decision, experts believe that once again, it proved that the false claims leveled against Robinhood are baseless.
It is worth noting that Altonaga previously dismissed a complaint contending that Robinhood and other brokerage firms conspired with Citadel Securities LLC to stop a "short squeeze" that was leading hedge funds to lose billions of dollars by betting against equities that retail investors favored. These charges have been refuted by Citadel Securities and Robinhood as well.