Robinhood remains at the focus of investor´s anger
Many see trading "democracy" in danger, after actions taken by the broker during the Gamestop hype.
Robinhood - the legend that stole from the rich and gave to the poor - is a myth, according to many historians. Now some are wondering if the revolutionary zero-fee trading app of the same name is the continuation of the legend, or its nemesis. Is Robinhood, the App, the real deal, or is it working with the Sheriff of Nottingham to help King John ... in this case, Wall Street? Following the GameStop saga, when Robinhood became the front line in a war between Wall Street and a new breed of retail investor, the bastion of democracy for capital markets is now under attack for sided with Wall Street in that battle Has. The result is that its users are filing lawsuits, calling for boycotts, and worrying that regulators (let's say Richard the Lionheart) could easily investigate. It all started when short sellers Citron Research and Melvin Capital made bets that GameStop stocks would go down. However, the collective group of Reddit users from the WallStreetBets subreddit bought the stock when the hedge funds tried to sell it short. Melvin Capital Management lost over half of its net worth in January after GameStop burned short sale funds. Business Insider reported that Citron Research posted a 100% loss. Both closed their short positions on GameStop. In the meantime, many retail brokers decided to limit new purchases from GameStop. What annoyed many, however, was that the decision allowed hedge funds to buy and sell, but on many platforms retail investors could only sell, which was hardly fair. While Robinhood wasn't the only company restricting the purchase of GameStop stock, its actions were seen as fundamental betrayal of its users. Immediately after the decision to restrict purchases, Robinhood was faced with a class action lawsuit from its users. The move to restrict trade also sparked bipartisan anger, as representatives from both political parties described the situation as favoring Wall Street and called on regulators to open an investigation. The SEC said it will review the restrictions to see if they "disadvantage investors or otherwise inappropriately limit their ability to trade certain securities." In a statement, the SEC said it is working with other regulators and exchanges to ensure that regulated companies meet their obligations to protect investors and identify and prosecute potential wrongdoing. " This is the bane of Robinhood. It's a millennial-geared stock trading app, and that means when its users turn against them, their anger goes viral. In just a few days, there were more than 120,000 posts on Twitter and other social media with hashtags like #boycottrobinhood, #deleterobinhood, and #cancelrobinhood. That is not the end of Robinhood's worries either. The trading platform was sued earlier this week by the family of Alex Kearns, a young options trader who committed suicide last June after seeing a negative portfolio value that did not match his actual account balance. Many Americans opened their first online trading accounts during the pandemic and used some of their business stimulus checks to trade stocks. The start-up grew from one million subscribers in 2016 to six million accounts in 2018 and currently has more than 13 million. Last year alone, Robinhood added 3 million accounts, with half of them being first-time traders. There have been several other reputational issues as well. In October, an internal Robinhood review found that nearly 2,000 accounts were compromised in a hack that siphoned off customer funds. The hackers compromised users' personal email accounts outside of the trading app and used these emails to gain access to their Robinhood accounts. In March, when the market bottomed and volatility hit an all-time high, the Robinhood platform kept crashing. Robinhood attributed the failures to "instability" in the infrastructure, which prevented the systems from communicating with one another. The problem prevented customers from accessing the app, website, and help center. These are troubled times for Robinhood, and winning back its reputation as the app that made trading democratic won't be easy.