Robinhood says that they basically couldn't fulfil the buy orders because they ran out of money, or couldn't fulfil the orders without breaking the rest of the platform. I imagine whatever the reason there's going to be lawsuits.

Whatever else happens, Robinhood should not survive this.

They clearly violated their customers' trust, so their customers should leave them.

And I will be completely unsurprised if when the dust settles it turns out they acted illegally.

Also, they suck at lying.

As has been stated elsewhere, it is easier to recover from alienating customers than it is from running afoul of the SEC. They ran a very real risk of being forcibly shut down by regulators if they didn't slow trading.

I don’t agree. See Tesla. Elon frakked up with the SEC but not his customers (or his fans) and so Tesla a couple years later is on top of the world. I doubt Robinhood will survive this. They built their whole brand around rallying for the little guy at the expense of the fat cats. It’s literally their name.

Tesla isn't an investing firm. They don't even really have much in the way of acquisitions yet. Tesla would have to do something pretty blatant to really piss off the SEC. Elon's $420 tweet was greeted with a slap on the wrist precisely because "you're new here, aren't you?".

The better analogy would be if SpaceX pissed off the FAA.

Tesla actually made an official statement on their website about going private within 24 hours of the tweet. That's what reduced it to a slap on the wrist.

Ask and ye shall receive

https://www.msn.com/en-us/news/technology/elon-musk-e2-80-99...

That's an absolutely awful argument. Elon Musk rich so don't have to bother with the SEC?

Nope. The question was whether it’s worse (in terms of recovery time) to crap on the SEC or your customers, and in which case you’ll recover faster. Elon frakked with the SEC and rightfully had to pay a price for it. But they recovered quickly. I don’t think Robinhood will.

The best thing is to not frak with either the SEC or your customers. And that’s probably always an option, even if it might mean sacrifice.

I don't agree. I think they provide a valuable service they should stay whole IF they can fix their capital issue and make their customers whole. You didn't forsee what was happening and neither did I because it was unprecedented. If not let them sink, someone will provide a similar service and learn from it. The SEC shouldn't be in the market of shutting down companies because a new phenomenon happened, let the market do that, unless something illegal has occurred.

I don't think the SEC should shut them down.

I think they should go bankrupt because their customers leave them for one of their many more reliable and trustworthy competitors.

Why would you post that without including information about the event and brokers you are referencing. You're not really adding to the information content on this site.

I assume you were talking about this event: https://www.leaprate.com/forex/liquidity/algo-traders-worsen...

Because if people are going to start playing these games they need to do the bare minimum of research. Their money is literally on the line.

It is completely clear that they betrayed their customers' trust.

I know some people think "but that's not illegal so they did nothing wrong". Those people are bad and should feel bad. And I think in this case enough customers are angry that robinhood will not escape the consequences of its actions.

I only said I would be unsurprised to learn they acted illegally.

I admit the "suck at lying" thing is more my opinion than fact at this point.

Do Robinhood's terms guarantee that their users can buy any stock at any time? Does Robinhood in any way ask or imply that their users cannot use another service? I'm just not sure what trust they betrayed here.

Trust is not covered by terms.

And you should read about how that was dealt with in July 2017.

Is this the Swiss Franc thing?

Yep.

>They clearly violated their customers' trust, so their customers should leave them.

They did? That might be the case according to the Popular Narrative (that the Hedge Funds phoned them and said "shut it down"), but reality is that they couldn't front the deposits for the customer's trades, due to the insane volatility. In that case it's less violating their customers' trust and more having a product that couldn't handle extreme circumstances well. They are a discount brokerage after all, some compromises had to be made.

The narrative doesn't matter. It's a PR problem. Lots of people wanted to buy GME, then RH suddenly cut them off, offered no reasonable explanation, and then their CEO went on the news to just spew some content-free noise. Sure, there were reasons behind this ban, perhaps good reasons - but they weren't explained by RH, and RH to this moment didn't even admit to the cause of the problem.

Sounds like solid ground for loss of user trust to me.

See also: https://news.ycombinator.com/item?id=25957097.

The CEO said they couldn't cover deposits. He only started spewing nonsense when the obvious question about RH having liquidity issues came up. He didn't lie to retail RH clients, but he may have lied to RH investors. Then again, it's funded by private equity, so it's likely they know all this.

All of this makes sense given the emergency cash infusion of 1B RH got this week.

They over a day to say that. Instead, they decided it was clearer to say "we're temporarily restricting trading due to volatility". If what you said really was the issue... Why not just say that? They're a startup. They'd be forgiven. Why hide behind vagueness?

I do agree that they bungled the whole thing badly, but I also think they were probably trying to prevent a run on their accounts when they were already cash strapped.

It's a highly regulated industry. Brokers can't just take actions. Perhaps they hit some regulatory corner case and nobody knows how the SEC is going to react.

I'm somewhat out of the loop. If RH is low on money due to lending it out, then they have to stop lending. But the decision was to stop allowing buy orders on GME if I read and remember that correctly. What's the issue? Don't investors deposit money into their RH accounts and then purchase the stock from that money, giving RH a commission? That should be good for RH, so I'm not getting this. I probably just miss some info, hope I'm not asking a stupid question.

Source?

"Abusive or manipulative trading activity that is prohibited by the federal securities laws."

Is that aimed at "professional hedge funds" or self-proclaimed "autists" in an internet forum?

It is aimed at the people who shut down buying GME, then tried to create a downward trend at unusual low volumes to try to scare the wallstreet bets crowed into abandoning their positions in GME to allow short positions to recoup their gigantic losses.

It failed mind you. The shorts are still bleeding and the GME hold is continuing though just at a slightly reduced price.

Retail investors who have bought GME can afford to wait out the antics of hedge funds, but those funds are on borrowed time to try to turn the loss of a century into some kind of win, or they are done for good. Ask yourself, who do you think is trailing the borders of legality? A teen who goes “hmm GME at 100$? Sure why not, I’ll take 10” or the hedgefond manager calling all his friends to stop trading because his fund is going bankrupt on a stupid bet he made that he would have gotten away with if it wasn’t for those meddling kids.

This is QAnon/Kraken/Dominion level crankery. The MAGA types are happy to believe in voter fraud conspiracy theories with no evidence because they hate the Democratic party, and here you are doing literally the exact same thing here except replacing "Deep State" with "hedgefond managers".

People like you make fun of the QAnon-types but you're just as willing to indulge in deranged evidence-free conspiracy theorizing as long as it accommodates your ideological priors.

Shorting more than 100% of the stock is excessive and irresponsible. That figure is not a conspiracy theory: it is public information that the SEC releases monthly.

Whether hedge fund managers did make a call to their buddies is not the only thing in question here (although the SEC will surely determine the truth). Shorting a stock drives the price down and, while this is no less legal than buying a stock, the question is whether shorting 136% of the stock counts as outright manipulation. Reddit kids have done nothing but pop an artificial bubble, they did not participate in manipulation; as the hedge fund managers and their buddies claim.

> QAnon

I have yet to see the baby cookbook or other evidence of their ridiculous claims.

The parent commenter claimed that brokerages were colluding to drive the price of GME down to benefits the shorts. That is QAnon-level evidence-free conspiracy theorizing. The clearing houses were demanding more collateral and brokerages couldn't afford or didn't want to put it up.

> whether shorting 136% of the stock counts as outright manipulation

I refer you to the snarky top comment about how all the Dunning-Kruger victims who claim manipulation do not actually know what manipulation is. Shorting a stock is not manipulation and neither is lots of people deciding to short a stock. 136% of the stock is shorted because a lot of people were shorting it, not because Some Guy decided to single-handedly short 136% of the float.

> Reddit kids have done nothing but pop an artificial bubble

So GameStop was an artificial bubble at $10 but not at $500? Really?

IB claimed to have hiked margin to 100% which is a reasonable response. However, I have heard from many sources that they in fact rejected buy orders even with cash - which, if true, and I have every reason to believe so, makes any explanation about margins and technical reasons seem ridiculous.

There is surely some deeper non public reason that every single retail broker - but no single institutional broker - stopped accepting GME buys but kept honoring sells. It might or might not be a call from hedge fund buddies, but it is still likely illegal.

When I was working at a hedge fund, I once executed a few hundred mil notional on a supposedly anonymous exchange, taking advantage of an obvious counterparty mistake.

Within 10 minutes, I got a call from said counterparty, telling me that next time I do that, they’ll make sure I’m kicked off the exchange.

Anonymous my ass. Legal my ass. And yet, it happened - I’m sure I wasn’t the first or the last - the other side kept making those mistakes. I stopped taking advantage of them. This kind of behavior is rampant in Wall Street. Only difference is it has been done now in the open, very visibly, and with thousands - perhaps tens of thousands - identifiable victims.

> So GameStop was an artificial bubble at $10 but not at $500? Really?

Did I claim that? I wouldn't touch GME with a barge pole.

> actions taken by regulated entities

That's clearly not about random people commenting on an internet forum.

It may still be about specific people commenting on an internet forum, but those people would know it's about them.

It’s aimed at both, presumably. It’s not like hedge funds have never gotten in trouble for abusive trading practices.

The problem is that when hedge funds get in trouble they do not go to jail, are not prohibited from doing business and the penalties (fines) are ineffectively weak.

Given the track record of holding the powerful accountable is terrible, I don’t think this is directed at hedge funds but is a warning to the little people.

> The problem is that when hedge funds get in trouble they do not go to jail

Criminal prosecution is held to a much higher evidentiary standard than civil fines. Almost all market related crimes, including manipulation and insider trading, require mens rea. Proving state of mind beyond a shadow of a doubt is really difficult to do. Especially when the defendant is sophisticated enough to know the law and have access to high-quality legal advice.

Any US Attorney would absolutely love to have the feather in his cap of sending a billionaire hedge fund manager or investment banker to prison. Hell, the reason Rudy Giuliani is a household name is because he managed to do that. But no prosecutor is going to bring a case that he has no chance of winning.

Given that it makes much more sense to target enforcement with civil fines rather than criminal prosecution. You can tie up your resources to fight expensive, hard to prosecute criminal cases. Or you can quickly settle for reasonable fines, and cover many more cases with the same set of limited resources.

It’s common for hedge funds (and more importantly, the people who run them) to be prohibited from doing business. “Barred from the securities industry” is the term typically used if you’re looking for examples.

True.

But why does this sort of thing seem to be the norm? https://en.m.wikipedia.org/wiki/S.A.C._Capital_Advisors

This.

It's clear that everyone should be lawyering up depending on what positions they had when they started pumping this idea to the masses. That said, I'm a big believer in "a fool and his money". If there are hedge funds or retail investors out there who, perhaps, didn't understand all the risks of what they were doing, protecting them from their folly only causes more problems in the future.

As horrible as this sounds, now is the time to let everyone fail. Hard. If we don't, no lessons will be learned.

IANAL, but to me it seems like it would be very difficult to convict retail investors of investing in a stock they believe has value and then telling other people they invested in a stock they believe has value. Unless there are chat records of a few redditors coordinating an astroturf campaign while twirling their mustaches or whatever, I don’t see how this could be aimed at retail.

Regulated entities who have access to tools or information not available to retail investors, or who applied financial pressure to manipulate access to the markets, or did not disclose conflicts of interest...that seems like a much easier case to make.

It's also not as if hedge funds are employing thousands of welders or craftsmen. These are high risk financial strategies by people who qualify as professional traders - "I didn't know" isn't an excuse anymore. If they lose the game, they get to eat their losses.

We will probably see a few retail traders get burned, and I suspect anyone wanting to do trading in the future is going to have to fill out more disclaimers.

Maybe not hedge funds but I estimate that the majority of what laypeople call "hedge funds" are not hedge funds. There are tons of firms that just run money for ordinary people. At my old firm they have shorted blackberry in thousands of individual margin accounts, and those accounts are losing money on paper and might have to realize losses in order to rebalance their risk.

I'd have some questions if my low risk or medium risk investment firm was making large shorts. Shorts are very risky for a whole bunch of reasons - which is also why they can be high value. Don't get me wrong, I'm sure every high risk fund can find at least one pensioner invested in them, but if your firm is well known for shorting then you can't pretend to be anything but high risk/high reward.

These aren’t large positions and that is the point. If a short position that was 2% of your account suddenly becomes 10% of it, now you have a problem, and the problem wasn’t caused by a wrong investment thesis, it was caused by a mob of kids online.

The big traders probably have friends in high places, so I suspect they're going after WSB and not wall street who caused the issues in the first place.

I know of cases from the Danish market where the financial service authorities went for people who had tried driving the price up in a pump and dump scheme for a small penny stock. Using internet forums and a couple of trading accounts.

They made a few thousand dollars and got months in jail for it.

The problem with wsb is that it has gotten so big and there are too many involved at this point.

It's not really that the government can't go after WSB. Sure they're not going to prosecute 2 million degenerates, but it's not like they can't round up 50 of the big names to make a statement.

It's that there's really no appetite in the federal government for going after retail traders. Retail trading as an industry took a very long time to build and ham-fisted enforcement could tank it harder than a few lawsuits ever could.

Make no mistake, this was going to happen eventually. There's infinite ability to gather information, infinite ability to share it. Retail collusion was inevitable. The people who built the industry knew it was going to happen. They prepared for it. Everyone, including the SEC, knew it was only a matter of time before something like this happens.

Denmark did that because there's much greater financial regulatory capture than there is here.

Yes. This stuff (market manipulation using internet hype) is so easy to do that they need to make an example.

I am very certain that most of retail traders who buy GME at 400 will end up losing money.

With the amount of media attention WSB has been gaining, this is setting itself up for "Wall Street versus The People" situation. It may be politically tough to go against the retailers now, particularly mid-pandemic and with all the other political comorbidities US is suffering from.

It's been that for a while. Lots of people on social media have been framing it as another Occupy Wall Street, except this time they've figured out how to make the elites hurt. There's plenty of people who don't care how much they lose when it bursts, because Wall Street is set up to lose more.

This is not about "Wall Street versus The People" or WallStreet vs Retail (small investors) it is about federal securities laws. And you know where the law is? In court. I think court needs to decide whether what is WSB doing illegal or legal.

I think court needs to decide whether what is WSB doing is* illegal or legal.

If after bubble pops it's shown that an elite group of WSB traders made huge profits while a large amount of retail traders lost their entire investment, I think there's going to be plenty of public appetite for nailing the market manipulators to the wall.

There is no "probably." It is well-known that people leave their civil servant jobs at regulatory industries, after putting in their time, and bring their know-how and connections to big banks and hedge funds in return for cushy salaries.

Worked in a broker in Australia, our head of compliance is a former ASIC (the Australian regulator) employee.

There is an NPR (National Public Radio) show called "This American Life" and several years back it had an episode devoted to this. They interviewed regulators. The big banks, for instance, will have an office on site for a regulator. The pull is to "go native" at some point.

Why would the SEC punish Robinhood for not having enough collateral to trade very volatile stocks.

IANAL but some possible reasons:

1. For lying about that reason to customers

2. for not shutting down all trading on their app (allowing sells of GME without manipulated the market, even if blocking sells would also have bad effects)

3. For allegedly tipping off Citadel before shutting off GME trading (unconfirmed but they will likely investigate this claim)

Yeah it's worth investigating if they are at fault somewhere.

But many people seem to think that the SEC will punish them simply because they stopped allowing people to buy more GME.

I think everyone knows it wasn't simply that though, hence the outrage.

Information I've seen is they selectively applied that ruling.

"Big fish" were still able to get an account manager to process their trades while the button buy was disabled for everything else.

There's also a seeming conflict of interest with Citadel's involvement in both RH and Melvin.

Hopefully it's more than posturing and that there will be action taken to back up this statement.

It specifies trading activity. I read this as a warning to WSB, not their brokerages.

No. WSB is not "a regulated entit[y]" that "disadvantage[d] investors or otherwise unduly inhibit[ed] their ability to trade certain securities". Robinhood is and did.

That's the first part but the second part is a separate statement against market manipulation generally. In the law, manipulation is forbidden to anyone, not just brokers and dealers.

I'd say you might be wrong on both counts:

1. preventing people from buying GME at, whatever, $300 might not have been disadvantaging them, and

2. it might not have been unduly inhibiting their ability to trade, but duly so.

You are so biased because you think GME is overvalued at $300.

Your bias even makes you defend Robinhood’s action to disable cash accounts buying certain stocks as DULY.

Wow

People who are anti-robinhood thinks it’s a message to RH.

Those who are anti-WSB thinks it a warning to WSB.

Might be both.

It definitely is. The next sentence specifies market participants which would include both WSB and hedge funds.

Quant firms made more money then WSB did trading on the momentum I'm sure. Do you really think retail was the only one pumping?

> actions taken by regulated entities

WSB isn't regulated, that is companies like Robinhood

> we will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity

Specifically calls out retail investors (i.e. WSB). I read it the opposite way, but I can see how it could be interpreted as a warning to both.

It boils down where and who did the manipulation?

140% shorts, including naked shorts from Melvin?

RH stopping buys but allowing sells?

Conclusive proof that Citidel put their finger on the scales to force RH's actions?

WSB's members constantly chanting hold/diamond hands/ride to the moon?

There's a lot at play, and further examination will make for a good post mortem...

There's a weird aspect of meme-as-protection. It's hard for a regulating entity to cite memes and seemingly offensive speech.

WSB is not a regulated entity, but presumably Robinhood is.

The "trading activity" is in the "in addition" sentence, it doesn't have to refer exclusively to regulated entities.

In other news there are reports of men in $4,000 suits with shovels and pick axes working above New York's many fiber optic lines.

And their investors...this could (not will, could) end up being a fairly easy case for piercing Robinhood's corporate veil.

Good on the SEC for stating they stand with retail investors, even if it ends up being hollow it sure is nice to hear them say it.

Absolutely not. On what theory? And on what grounds? There's no such thing as "a fairly easy case for piercing the corporate veil".

Lack of separation? If it turns out they did take any direction on this from anyone holding a short position in GME I would imagine RH is fully and completely screwed, as are their investors.

this is all hypothetical, which is why I used the word if. If they did what WSB is accussing them of, which I think is probably doubtful, RH is in really really big trouble...