Is the society already working this way?

Maybe the lawsuit will fail, but they will obviously take a giant reputational hit and it is fascinating to me that they chose to do that. What is the upside? The only thing that makes sense to me is that the owners of Robinhood have too much conflict of interest with the hedge funds that were losing money (and so are acting against the best interests of Robinhood itself in favor of their funders).

Alternatively, maybe they're being honest about it and what's going on at this point has nothing to do with hedge funds and everything to do with what appears to be a scheme to pump up the price and the people that are controlling the narrative sell first.

It's unclear what hedge fund is getting it stuck to them at this point, didn't they say they covered their position already?

If that is true, then it really does start to look like what started as an interesting way to penalize hedge funds doing this has turned into a bitcoin-style bubble. Which can also be a useful point to make, but a point that is completely disconnected from the desire to screw over hedge funds.

I personally am going to switch away from them to some other brokerage. Their app is very well made though so I hope the competition catches up

Lesson: don’t have an evil business model because it will catch up to you.

1. The problem with RobinHood's behaviour here, is that they are doing price manipulation (By only allowing sells, instead of buys.)

2. Price manipulation isn't really a crime against their customers, it's a crime against the stock market. Their customers will sue them, but probably won't get much. It's a bit hard to make a case for "You stopped me from trading, when I was planning on making a lot of money from trading, by cashing out right before a bubble popped."

3. The SEC is supposed to deal with crimes against the stock market. They may or may not sanction RobinHood, but I doubt the sanctions will be serious.

4. The SEC might look into the obvious collusion problems, where the owners of the GME shorts may have reached out to the exchanges/settlement networks, and tried to block retail traders from buying GME. This may or many not result in financial penalties. Even if sanctioned, this may be worth it for the owners of those shorts, because the alternative is bankruptcy, complete financial ruin, and the sale of their children, their grandchildren, and their great grandchildren into sixty years of bondage.

5. Your thesis is sound, but the SEC works with, and for large players in the market. Those players want a mostly-fair market. If the counterparty on the other end of these trades were not retail morons on reddit, the SEC might be a bit more heavy-handed in their enforcement. The thing is, most price rallies are not driven by retail morons on reddit... So, if your business plan consists of "Short a stock to 100%, then call up all the exchanges and settlement networks, and tell them to only allow you to buy stocks," there's going to be a lot of really wealthy counterparties to your trades, who are going to be really, really pissed, and you will probably lose all your money and go to jail.

#5 is unlikely to happen here, because the narrative around this is 'Ha, look at all the dumb retail money driving a bubble, we are just deflating it before retail traders get burnt.' And that narrative is partially true, which is why it's making the news cycles, and serious talking heads on the television repeat it with a straight face.

... Also, I would like to point out that there is nothing wrong with shorting a stock, or shorting a stock past 100%. Yes, it can trigger a short squeeze. No, I don't really think there should be rules against it, or against short squeezes. These are institutional investors, who surely must understand that short-selling a stock carries unbounded risk. If they wanted bounded risk, they should have bought puts.

> As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today.

> To be clear, this decision was not made on the direction of any market maker we route to or other market participants.

I smell bullshit. These are long positions, these aren't options, or trades on margin. Robinhood, and its settlement network (As well as other exchanges, who have stopped retail traders from buying GME) carries effectively no risk for settling buys and sells in them.

Basically so many shorts were sold, way more than what exists when trying to cover them, the cover would fail, the clearinghouse would raise the margin rates of Robinhood so much if this kept happening that it would cause them to go out of business.

It sounds like nonsense, because what she's describing is not Robinhood's problem. The shorts are predominantly being done by hedge funds (with only a few retail investors here and there). Hedge funds aren't trading on retail platforms, like Robinhood. It's not Robinhood's problem that the hedge funds are being eaten alive on margins, or if the hedge funds are having problems with the clearing houses.

If margins, and the Robinhood/clearing house relationship were the problem, then Robinhood would stop people from opening new margin positions on GME. But that's not the case, here. They are preventing people from entering non-margin long positions.

Do you have a different take on this?

Edit: https://news.ycombinator.com/item?id=25951475 seems to be a different take on this. One that makes a lot more sense then the lady on television. The tl;dr of it is that even for a simple, non-margin stock trade, RobinHood needs to put dollars up as collateral... And they ran out of dollars.

They identify (possible) crimes, the Justice Department deals with them.

The SEC only “deals with” civil wrongs, not crimes.

There, fixed that for you.

This kind of blatant manipulation is the first time. And yes if they get away with it, chances are that they will do more of it.

Order books have been nationally integrated since 2005 [1]. This is how independent HFT firms got their start.

[1] https://en.wikipedia.org/wiki/Regulation_NMS

this would be illegal. Any evidence this happens?

Remember "too big to fail"?

IDK... I'm probably missing something about norms or precedents, but allowing selling and not buying is not just brazen. It's straightforward enough that the average person is incensed and understands specifically why. This isn't systemic risk and turtle stack complexity.

This is probably my info-bubble, but nihilistic rage of WSB seems to be spilling out into the world. The social media (dischord/reddit) aspects, hedge funds, markets/brokers... it all adds up to symbolic whole that has ordinary people cheering on a bunch of maniacal gamblers. The SEC is looking more like a belligerent than a regulator.

Remember that the SEC is, first and foremost, a bunch of cowards.

I think it’s the other way round - there are millions of people who feel disenfranchised, cast away, left behind. Their rage has been manifesting in events such as Brexit & the election of Trump. Currently the most visible expression is the GME saga, but the undercurrent of rage is the common factor & I expect it will be more common & more obvious over the next few years, as the elites try to pretend it’s back to business as usual.

I want to agree with you, but I have to say that some of the most rabid Trump supporters I know are fellow software engineers earning at least $150K a year, and sometimes much more. What do they feel disenfranchised about, cast away, or left behind?

I agree that it's part of the explanation, but it seems to me like there's far more than that going on.

Not all BLM supporters are black.

Wait, is Citadel a big enough player as to influence the regulatory system, like on the level of JP Morgan or Goldman Sachs?

No. They barely avoided going out of business the last time around.

I don't think JPMorgan needed any government intervention. Goldman didn't directly, but if AIG had gone under so would they. (To be fair, so would the entire financial system.) But in the end, both of them got help.

Citadel didn't. It wasn't in that club. It is not now. If Citadel failed tomorrow, it would make headlines for a week, and then we'd move on.

Meaning 'too big to fail' applies to hedge funds now just like investment banks. Ala LTCM

https://en.wikipedia.org/wiki/When_Genius_Failed

LTCM wasn't making markets and it was done in by leveraged bets on Russian bonds.

The term you are looking for is systemically important financial institution (SIFI) [1]. BlackRock, with $9 trillion under management, is a SIFI. Citadel, with under $40 billion, is not.

[1] https://en.wikipedia.org/wiki/Systemically_important_financi...

JPM received $25B in CPP funds on October 28, 2008 and repaid it on June 9, 2009.

Aside from CPP, any bank that had assets affected by TARP purchases -- or by the potential that follow-on programs could affect those assets -- had its balance sheet ballasted in one way or another by government intervention.

All of the banks that survived will say they didn't "need" government intervention, for the same reason that they don't like to borrow from the discount window: it looks desperate to take help from the government. But technically both of those banks received an injection of liquidity via TARP.

They had the, "we didn't avoid the mortgage mess, we just made more money on shorts than we lost" and "we are very well positioned" emails that became evidence in the Senate investigation into the GFC. The ones are the namesake for the book/movie The Big Short.

I think SEC greenlighted what in my view amounts to a highly illegal action by Citadel/Robinhood (as i think Citadel still has exposure, probably indirectly, on the short side). The situation in its nature does look like the CDS calls which caused the 2008 crisis. I think some "too big to fail" players wrote a humongous amount of GME/etc. uncovered calls (and similarly structured contracts) in the previous months which now threaten to take them down. I mean writing the $100-200 GME calls were practically free money back then while these days it has materialized as the tens of $B liability. Similar to CDS - the statistics practiced on Wall Street permits to have tremendously huge potential liability if it is at a very low probability. When such a low probability event happens though ... hopefully you're too big to fail and the system would then step in to save you by socializing your losses in some way.

So, before going outright bailout road which would be tough politically, i think big people decided to try to spread/socialize that "too big to fail" players' loss among the retail investors, and thus the stock buying block for retail investors (i'm voting with my dollar - have a bit of long of AMC).

People have been attempting a short squeeze all week. Short squeezes are illegal. By allowing a short squeeze to continue with no action, Robinhood would have been taking on massive legal liability for aiding and abetting illegal activity.

Shorts got greedy and got caught out. Should short sellers not have any downside to their trades?

I guess the billion dollar question is, legally: does buying stocks in anticipation of a short squeeze, and communicating the same to others, count as manipulation?

The question I think would rotate around whether this is 'a scheme to manipulate', or simply identifying an opportunity to capitalise on Melvin's greedy position.

Oh please. As if whoever has their thumb on the social media scale isn't greedy. Greed runs the street in longs and shorts. You can invest modestly by diversifying and avoid all that.

> Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.

Also, can you use Clojure to cause a short squeeze, or... [ducks]

Also: If a big hedge fund shorts a stock, expecting to drive its price down, that's cool. (Search "big short drives down stock price")

But if regular people buy a stock expecting to drive its price up, that's terrible.

Sorry, this position just isn't credible.

I don't know if it is or should be illegal but I can see why it raises some questions.

No, you're betting on the stock's future performance, not the company's future performance. There's an ocean of difference between the two.

If the company does poorly, but the stock price rises, or stays the same (Say, because we're in the middle of a COVID recession, and the printing presses are working overtime), you're going to lose a lot of money.

How do you know that everyone who bought it actually doesn't care about Gamestop's worth? There isn't really any way to prove that every single person (or even a majority of people, or really even a good portion of the people) don't care about GameStop's success and are solely doing it as a metagame.

Sure, there's threads on WSB about this, but there's no real way to tie that to actual transactions, and not everyone who has bought stock even contributes to that subreddit, let alone the specific threads about this.

Furthermore, all it really takes is someone saying "I bought stock because I believe in the company". We don't have thought police; unless someone explicitly posts "I, RH account XXX, bought the stock in a concerted effort to short it" there's no real way to prove intent.

I heard (from a non-authoritative source) that the coordination on reddit, etc. is not manipulation.

Please source the following comment:

> by continuing to allow trades, Robinhood was taking on major legal risks

There is no one else sharing this talking point that I can see.

I will continue to call you a shill. Please see my comment history to understand that this user is quite interested in spreading misinformation, and given their previous topics, looks to be being compensated for doing so.

Obviously not the reason, since they posted a blog saying they did it to protect consumers from volatile stock.

It says market manipulation is illegal. It is not particularly clear whether a message board getting excited about a short squeeze does not count as something that "may occur naturally".

Evidence? The interview below (with CEO of broker Webull) claims that the clearing firms cannot (or don't want to) cover the increased cost when clearing these trades, and told many brokers that they won't open positions anymore, due to the two day settlement delay.

In other words, an entirely innocuous explanation.

I could be off here, but what I'm asking is getting at like if they are on all the sides of the transaction as market maker, participating or allow others to participate in 'betting', and clearing the trades themselves? Does a trade even need to clear if it's just moving internally changing col A owner ID from 1234 to 9999?

Sure looks like a rigged game to me.

https://www.bloomberg.com/news/articles/2021-01-29/for-robin...

it is short-sellers who need to pay up the margin calls etc. the way short selling works, it can create crazy leverage

it is definitely a lie

Yes. DTCC changes collateral requirements on securities all the time [1]. The collateral requirements they put on GME aren't even that egregious. Robinhood just didn't want to pay up.

[1] Literally, every day. But the haircuts they apply to the last day's market prices are also quite variable.

Stopping margin trading, absolutely. Stopping short selling, of course. But we’re not talking about either of those things. We’re talking about cash-funded limit Buy orders on a duly listed publicly traded stock.

See [1].

Long story short: Robinhood lets you buy and sell a share instantly. In the real world, those trades take days to settle and clear. To bridge the gap, Robinhood loans you the difference. And Robinhood, in turn, is "loaned" [2] some of that difference by the DTCC.

So when the cost of that loan goes up, their costs go up, and they responded to that cost pressure by turning off trading. (There are other options.)

[1] https://news.ycombinator.com/item?id=25950361

[2] In quotes because it's technically a collateral requirement. If you sell $100 of stock, DTCC may tell Robinhood it only needs to put up $2 of stock as collateral while Robinhood gets the rest from wherever it's getting it from so it can pass it along to the next person. The $98 is "loaned," as in it's owed to DTCC. If Robinhood fell down, DTCC would sell that collateral and buy the rest of the shares in the market. In this case, DTCC said "these shares are super risky, and may lose all their value in a heartbeat, I need you to hand me 100% of the shares you say you are selling when you sell them." And Robinhood said no. Because that's expensive.

[a] DTCC says put up $100 per share because DTCC is not a lender either! It has lines of credit with various banks. And the banks bear the risk of the loan defaulting. So they're setting their rates and then DTCC draws from the cheapest line.

I don’t think the problem here was with too many trades. Very few Robinhood accounts overall have over $25k balance.

I guess I can’t see where the risk is. Shares are moving electronically between different ledgers as orders are fulfilled. Shares aren’t being created or destroyed, nor is money.

I can definitely see how you could end up with large net cash flows that need to settled over the next 48 hours, if Robinhood accounts are collectively gaining or losing huge percentages of their value from one day to the next. But I don’t see, absent allowing margin or naked options, how they could ever end up owing more than they actually have on hand in their custodial accounts.

I would possibly believe that Robinhood didn’t have the technical controls the fix the problem that they were having the “right” way, and had to resort to their “least worst option”.

For example they should have the technical controls to flag specific sales to prevent those funds from being reinvested until the particular sale settles. By free and clear settled cash should be able to buy any publicly listed share it wants.

Ah, this is the disconnect.

They're not. Shares and payment for them move within two business days [1]. In the meantime, both sides must post collateral as a guard against their failing to deliver.

You're a broker. Suzy has $20 in her account. Suzy sells a share for $10. She buys another share for $10. With the first trade, you have to post--today--collateral against that $10 for two days. With the second trade, you have to post--again, by close of business today--collateral against that $10 for two days. To keep things simple, let's assume Suzy did not use the proceeds from the first sale to finance the second. That leaves you with $20 of liabilities and $20 of cash.

Next day, Suzy sells all her shares for $40. Now you're putting up collateral against that $40 for two days. The $20 from yesterday still hasn't arrived from JPMorgan--they have until tomorrow. You now have collateral against $60 of liabilities. At the end of the day, Suzy makes a withdrawal request because she's a little shit. So now you have $80 of liabilities from someone who deposited $20 in her account and never had more than $40 of assets.

Clearinghouses use the last day's closing price to determine how much collateral you need to post. They then multiply that by some value that ranges between 2% and 100%, depending on what their line-of-credit lenders offer them. That is leverage. To manage that risk, the clearinghouse adjusts that multiplier. Going from 20% to 100% in the above example would mean going from $16 of collateral required to $80. That's $64 of cash you need to come up with before the end of the day or you're out of business.

If Robinhood operated with zero clearing leverage, they would not be able to offer the instant-trading experience their competitors have offered since the 1990s.

[1] https://www.investor.gov/introduction-investing/investing-ba...

Question, why are we operating near-real-time settlement systems for securities if it doesn't eliminate such risks? I don't understand why these transactions aren't being netted and conducted as close to real-time as possible.

This aspect of the economy seems like a significant vulnerability.

The firms that provided instantaneous-seeming settlement got the orders. And settlement failures were rare and correlated enough that avoiding them wasn't a differentiator. Then we got centralized clearinghouses and deposit insurance and the risk fell so far into the background that it's entirely novel to many market participants today.

> why these transactions aren't being netted and conducted as close to real-time as possible

It is technically difficult. It provides less room for correcting errors. And because real-time payment rails are fundamentally more expensive than batched rails, and if your payments aren't in sync with your settlement you've got a credit component somewhere.

> seems like a significant vulnerability

It does, but I don't think it is. Clearinghouses spread risk across a lot of people. They also help early identify daisy-chains, e.g. a single broker sold ten shares to ten brokers who then sold it to ten more fifty times and that single broker hasn't settled yet, and loops, e.g. I owe you and you owe Larry and Larry owes Bob and Bob owes me, of settlement risk. That's why Dodd-Frank moved many derivatives onto centralized clearinghouses.

That said, we've only had these since the 1970s. Counterfactual: we didn't have the technology to do this until the 1970s.

A part of the reason why the Automated Clearing House system was setup was the collapse of Herstatt, which was a settlement failure that led to the global push for RTGSes.

It is not that difficult to imagine another such storm. A heavily shorted stock, where retail traders "rally" to stick to the man and buy + hold on to the majority of the stock in circulation. And then the shares left in pools + the open market aren't enough to cover everyone's position. Creating a cascading failure.

I’ve been looking at settlement also and am particularly interested in overnight Interest rates. https://en.m.wikipedia.org/wiki/Overnight_indexed_swap

This past years changes at the Fed for Central Bank Interest Rate Swap Lines and 9 new banks, which included Sweden and others. https://www.federalreserve.gov/newsevents/pressreleases/mone...

The dollar is running the world right now. Lots of demand even as, or maybe why, the value has been weakening. https://www.marketwatch.com/investing/index/dxy

Curious when the dollar running the world will begin to change. The US dollar and CN Yuan are the only countries keeping us with positive, basically zero, interest rates globally (See IMF SDR) https://www.imf.org/external/np/fin/data/sdr_ir.aspx

Lastly, Power to the Players! Still looking for more short squeeze on the GME shorts, would like to see them get pushed down to a reasonable level of the float (5-20%?). I’m holding.

I don't see the lack of real-time-settlement as a vulnerability so much, but more the mismatch. But I'd suggest fixing it not by increasing the frequency of settlement, but by decreasing the frequency of trading (Tobin tax (which, funnily enough, is also called Robin Hood tax [1]); replace continuous trading with a couple of auctions a day; ???).

[1] https://en.wikipedia.org/wiki/Tobin_tax

Side note, I am against the Tobin Tax. I think public markets are more important than most folks believe.

I do believe that frequent trading is a good thing, as is retail participation in markets. One of the amplifiers of income inequality, I suspect, in the past few decades has been the fact that high-growth companies that normally would have gone public sooner have stayed private for longer, denying participation from the public market.

For example, a well chosen index of Dot Com stocks that included Amazon, Google, E-Bay etc. picked in 1998 would have, provided there was continuous investment and a long-hold, injected a large amount of capital back into the public and retirement systems, which would have helped lift all boats so to speak.

AMZN was originally at around $4/share (adjusted for splits, provided this data source is correct, https://www.macrotrends.net/stocks/charts/AMZN/amazon/stock-... ), if you had bought 1k stocks of the company in pre-2000, and held until now. Your originally $4k position would be worth 3.2M.

That's quite crazy. And it's retirement money for a lot of people.

Amazon's growth has occurred in the public, giving retail investors the ability to tap into the formation of new wealth. SpaceX's, AirBNB's, DropBox's etc hasn't. They're playthings of the well heeled. Not the gumshoes.

We need to re-orient public markets in such a way that everyone gets to participate in wealth creation. Not restrict it even further.

On the frequent trading, let's agree to disagree.

On retail participation, agreed. But I don't think that the Tobin Tax would inhibit it, but rather HFT and maybe day trading.

Fully agree that this new thing of companies staying private longer and longer is a bad development, with the best deals available only to the few connected and wealthy.

Best investment money can buy is after-dinner speakers fees to people who then show up at the regulators.

That's the Congress of ten years ago. Today we have both parties reeling from a populist revolt and anxious to avoid another one (even as they cynically try to get as many points in as possible). Case in point: among the usual suspects tweeting we heard from one Donald Trump Jr.

I doubt that they'll do what WSB wants (whatever that is) but I think there's a relatively good chance of some significant legislation coming out of this.

Robinhood seems to have reversed on buying GME, though, at least for now, which pretty much invalidates the lawsuit (but doesn't prove it was useless).

https://news.ycombinator.com/item?id=25950306

Also the creation of the SEC was essentially to protect retail investors from speculative investments (that typically cleaned them out). It would be less likely to see a trade halt as going "against the people" but as a consumer protection practice, so it's doubtful it will be wagging too many fingers at RH.

Retail investors are RH's biggest customers. They're diminishing their risk of suits they'd likely lose/regulatory scrutiny by halting buys. The SEC will more likely hit you for allowing pumps rather than preventing them.

Trading halts are at the exchange level and stop _all_ buys and sells

What happened here is some brokers/clearing houses prevented _retail traders_ from buying, but not from selling

This is a specific broker—-one with direct financial ties to this trade, by the way—-totally shutting down the ability to enter an opening order for a specific ticker. Pretty unprecedented artificial suppression of demand.

Several did it. I heard WeBull did the same. I know I got a TastyWorks notification when they did it (and a little while ago when they turned it back on).

The more I hear, the less convinced I am that RH in particular did something nefarious.

Robinhood has no set rules, and it was impossible to predict when or if they'd halt purchasing shares. It was also not possible for Robinhood traders to know when trading of the stock would resume.

Also; Robinhood didn't halt the trading of GME, AAL, AMC, BB, and others. They just halted the purchasing of new shares. Robinhood tried limiting who could buy shares of those stocks to only the hedge funds. That would drive the stock price down, thus manipulating the stock price in the favor of Citadel / Melvin and their short positions.

This will be the end of wall street. Or at least, the end of companies like Robinhood. Faith in American systems were already at all time low after last four years and now with this kind of market manipulation at the expense of retail investors, American stock market will be bust. There is zero reason to play in this casino.

[0]: https://www.fool.com/the-ascent/research/online-brokerage-st...

[1]: https://www.brokerage-review.com/investing-firm/assets-under...

EDIT: Added concession in last line that not all in the top 5's AUM is retail, but the point still stands.

Market manipulation is not new, and it's not impacting most retail investment strategies, which are much longer term. This is exposing inequities in the market that have existed for a long time, but I would be shocked if it has a significant impact on the assets of retail investors. As others have said, what other options are there? The game is imperfect, but that doesn't mean everyone stops playing all the sudden.

I was able to trade GME all day on E Trade without a single issue.

Personally, not a fan of the casino metaphor.

pension funds arent going to stop putting money into private equity, today will just make people less inclined to go retail

I could see a lot of money leaving wall street for emerging markets over the next 10 years but I dont think a full divestment from american markets will happen in my lifetime

Gambling socially, I enjoy. Playing poker with the guys, typically. But the stakes are absolutely tiny, so we really are just playing for fun.

However, I believe that everyone has a sacred right to destroy themselves in any way they like. If they choose to ignore conscience and indulge in gambling, it is on them.

People say this and chuckle about how witty they are but it's the only "tax" that we let billionaires extract from the poor and act like we're okay with it.

If you got a bunch of spare money, enjoy the stock market.

At the root it’s nation state currency being manipulated.

Like in 2008. Privatize the gains and socialize the losses.

The entire ledger needs a wipe. It’s pure emotional bias to suggest the future is obliged to carry the debt of the past. There’s nothing in science suggesting such a truth exists.

There isn't, but I think one can make the case that there should be. At the very least, communication from Robinhood, from the exchanges and from regulators was piss poor. As a result, we have half the internet wrapped up in some Ken Griffin as Gordon Gecko Batman conspiracy theory.

Robinhood was criticized for marketing day trading to people who, to a large degree, didn't know better. The counterargument was people knew what they were getting into and were free to do it. Fair enough.

This adds a new wrinkle. It wasn't ever a day trading platform! A day trading platform should be able to handle high volumes. It should be able to handle increased collateral requirements. It should be able to handle some market makers going offline. What Robinhood did is contractually allowed. But it flies in the face of what they held themselves out to be.

Robinhood sold a turd doughnut, folks said "it's fine, I want a turd doughnut," and then the turd turned out to be uranium.

What they did was effectively form a public stock pool for the purpose of disrupting the orderly function of the market, and drive up the price beyond all reason. This kind of thing used to happen regularly a century ago until regulation was enacted in order to stem that kind of abuse. If the SEC weren't in what appears to be a coma, they should have enforced those rules days ago by completely halting trading in the stock. But it seems that falls on private companies now for some reason.

On top of that it turns out that the one person bidding is part of a museum that has a significant stake in the auction house.

Of course comparisons like that break quickly. But it is very obvious that market-makers (or other players behind the scenes) were extremly worried about the coming squeeze and did that to stop the stock from going higher.

Especially for something as complicated as security law, I'd expect to see an entire section on market manipulation laying out what the precedent says they need to allege to substantiate their claims and then detailing enough facts (or beliefs to be made good on in discovery) to make that claim credible. Without it, the complaint comes across less as "Robinhood clearly broke the law" and more as "I'm whining because I don't like the contract I signed with Robinhood."

[1]https://cdn.robinhood.com/assets/robinhood/legal/Customer%20...

Of course you might not always win. In the case of Robinhood, since people could still close their existing positions there might not be a very strong case to be able to prove damages. But to me it's still not a crazy lawsuit to attempt based on how many people were expecting to be able to use RH to buy this stock today, and that's what the legal system is there for.

Legally this is nothing at all like not serving a specific brand of alcohol at the local bar.

IANAL, and I’ve only dipped my toe into studying FINRA while doing research on decentralized exchanges, but as I understand it, FINRA regulations impose a lot of requirements on brokers, particularly around fair dealing and around preventing market manipulation.

https://www.finra.org/rules-guidance/key-topics/suitability

Do you know what short selling more than 100% of the available stock does? It's the same as if every single stock owner collectively decided to sell their shares. Worse 140% of the float was shorted which means the amount of people that sold their shares was bigger than the entire market. That's an extreme example of market manipulation and that is what happened to GME. It was trading at $4 per share when its fundamentals would value it at $20.

You're also forgetting that this started with the Chewy CEO buying a 13% share in the market because he wanted to turn Gamestop into a growing company. That was the day when short sellers should have started sweating but they kept shorting more and more. They could have made a lot of money by closing their positions. If they had done so they could have shorted Gamestop again once its digital business turns out to be a dud and short it again with almost no risk. Why on earth did they not do the responsible thing? Come on. It's extremely crazy what they did and it can only be explained by greed. When you short a stock from $20 or more to $4 the only upside left is that the stock literally goes to $0. That's a measly $4 when you already have safe $16 gains per share.

Unfortunately they failed to close their shorts and become rich. I don't know exactly how much Melvin Capital had in shorts but they probably could have made $3-6 billion off reasonably safe shorts. If they started at $3 billion they would have basically trippled their starting capital. That's a bitcoin bubble level of return with a fraction of the risk. It was almost guaranteed money.

Now enter greed. They never exited their shorts until recently and they probably didn't exit all of them. Other hedgefunds still keep shorting the stock even though it is going up astronomically.

How does wall street bets enter the picture? Wallstreet bets is just a place where your average retail investor posts some memes about how much money they have lost. They've grown thick skin and are willing to trade $300 or $600 with the full expectation of losing the entire investment. They absolutely love household brands. They shill Nokia, Blackberry and also Gamestop. Here is the thing. They know that short sellers are holding the bag and completely "overshorted" the market and put themselves into a really bad position of their own making. They started buying the stock because it fits with the WSB theme. They value the stock like a beanie baby. The stock itself is what they care about, not how much it costs and that means they will not sell their precious stock. It's like any other consumer good. They are basically decorating their broker trading apps with stocks and the accompanying losses. It's purely about fun.

Okay now lets go back to what you said.

> The only manipulation anyone is engaging in are the WSB people,

As I said they basically buy shares and hold them. What I haven't said is that WSB is a tiny fraction of the buyers of GME. There are lots of large institutional traders investing into GME. The only difference is that WSB types tend to be slow and just end up holding the stock way too long. Either by accident or intentionally. This idiotic slowness is actually very bad for short sellers because they bank on desperate people selling their shares in a panic. It's a situation in which the disadvantaged retail trader somehow does not suffer from his weaknesses.

>and they should be prosecuted to the full extent of the law,

They aren't breaking any laws. The short sellers are potentially doing illegal naked shorts. We don't know but considering that more than the 60 million shares are shorted its not impossible that 5 million of them are naked.

>and should be made to forfeit any and all profits made from this criminal scheme

What about the act of selling all shares in a market to artificially drop the value of a share below its fundamental value? Why is that not a criminal scheme? I'll repeat, if you let the short sellers get away with this then they can get away with anything. They can tank any stock simply through the act of shorting. If shorting 100% isn't enough then they'll go for %200. If that isn't enough they will short %300. There is no limit to how many shares you can short just like there is no limit to how much debt banks can create if it wasn't for reserve requirements. With this strategy you can reduce the market cap of any stock to zero. Think of destroying Apple overnight. That's what you can do with naked shorts.

>plus penalties and a permanent ban from trading securities.

The only counter strategy against an over shorted stock is to just buy it. There is absolutely nothing illegal about buying stocks. However, if you make it impossible to buy it then you basically make the short selling scheme self fulfilling because it has no natural predator.

It's pretty simple really: If you want to sell short a stock, you need to borrow it first. You can only borrow it from someone who owns the stock. But each short sale also creates a new corresponding long position that can again be lent out for more short selling.

Example: Let there be a stock with a float of 100 shares that you own. You are a long-term investor L1 who loans out these stocks (for a fee) to a short seller S1. S1 borrows the stock, and sells it to another long-term investor L2. There is now a short interest of 100 shares, or 100% of the float. But L2 can again lend out those shares to another short seller S2 who sells the shares to yet another investors L3. Now you have a short interest of 200 shares, or 200% of the stocks float. But absolutely nothing illegal like naked short selling has happened, because the sum of all short and long positions still equals the float of +100. That's simply who this works.

But now we have a bunch of ignorant amateurs spreading conspiracy theories while pumping up a largely worthless company to a ridiculous valuation. And that is market manipulation, because there is no fundamental reason why this stock should be this expensive. What's more, transacting in a security for the sole purpose of raising or depressing its price in an attempt to induce others to buy or sell that security is a violation of 15 U.S. Code § 78i. As hundreds or even thousands of posts on reddit and other sites will confirm, that is exactly what these people are doing. They are publicly admitting to the crime.

Regulators cannot let this stand, because otherwise you are encouraging more of this kind of market manipulation and abuse. An example needs to be made out of those who are responsible.

This exact point turned up 4 hours ago in another thread:

https://news.ycombinator.com/item?id=25946004

> Rigging quotes, prices, or trades to make it look like there is more or less demand for a security than is the case.

By restricting only buying, they effectively rigged the prices to make it look like there's less demand than is the case.

There is also the problem that reading every ToS is a denial of service attack on customers.

(Many said they'd never fly United again, and most people wouldn't... United share price dropped a bit, then went straight back up to where it was and beyond. Well, until COVID-19.)

Edit to add: BTW, the point is not that you should always read the TOS. The point is that you should read the TOS before complaining if something unexpected happens.