Robinhood Lawsuit: New Documents Reveal Internal Conversations of Executives


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In a new development in the case against Robinhood, new documents showing internal conversations between company executives have been brought forward. The documents show Robinhood executives lamenting the financial state of the company in contradictory terms to the CEO’s public statement.

Recall that the CEO of Robinhood, Vlad Tenev, had on January 28 stated categorically that the company did not have liquidity problems. This was after the company announced trading restrictions on its website the previous day. Contrarily, documents revealed by the counsel to the plaintiff, Maurice Pessah state otherwise.

The documents show Robinhood Chief Operating Officer, Gretchen Howard stating in a conversation that the start-up was facing a major liquidity crisis. By this and other excerpts obtained from the company’s Slack channel, the plaintiffs alleged that the company executives knew the implication of a Reddit-driven short squeeze but didn’t do enough for clients to mitigate risk.

In Pessah’s words, “In our opinion and as we allege in the lawsuit, they didn’t do their jobs and what they are required to do in terms of analyzing risks and managing risks as a broker.”

How the Robinhood Lawsuit Started

Robinhood and other brokerage firms witnessed a surge in the trading volume of heavily shorted stocks like GameStop and AMC Entertainment in January. Unable to meet the deposit requirements because of increased volatility, the firm restricted buying of the securities. Subsequently, Robinhood raised more than $3.4 billion to be able to meet its capital requirements.

The case against the company was filed at the U.S. District Court in the Southern District of Florida. Plaintiffs sued for damages, interest, and attorneys’ fees resulting from the trading restrictions imposed in January.

Since then, Robinhood’s CEO has been invited to testify in Congress. Tenev told the representatives that the GameStop mania was an unexpected rarity. He noted that it couldn’t be modeled. He also asserted that Robinhood’s risk management processes kicked in as they were meant to.

Securities and Exchange Commission Chairman, Gary Gensler, also appeared before Congress. He stated that his team had been looking into the issues since then. He promised a report by the end of summer. With the end of summer looming, retail investors are waiting to see what his recommendations will be, and how they will affect the trading system.

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