Robinhood will pay $9.9 million to a proposed class of users who sued the online broker over repeated outages of its app. The plaintiffs estimate their damages at $20.4 million.
Stock-trading app Robinhood has agreed to pay $9.9 million in cash to a proposed class of users suing over repeated service outages. https://t.co/Wqunrr9Vgl
— Law360 (@Law360) August 9, 2022
The class action was filed by 150,000 platform users.
The parties have reached a pre-trial settlement.
“The deal provides meaningful and immediate compensation for such proceedings”, the statement said.
The claims against Robinhood relate to the March 2, 2020 incident. On that day the stock market posted the largest gain in history at the time, but the platform operated incorrectly through the next trading session.
Another similar outage was recorded on March 9, 2020.
In mid-year, numerous lawsuits against Robinhood were consolidated into a single case in a federal court in California.
The proposed settlement defines three circumstances that could be included in the deal. Payments will apply to users who:
- closed at least one position with a loss on March 3 relative to the average price during outages on March 2 and 3;
- suffered losses on a certain type of option position that expired on March 2;
- suffered losses due to unexecuted trades.
The deputy general counsel of Robinhood, Sheryl Krampton, said the online broker was pleased to reach the agreement. A company spokesperson noted that since early 2020 it has invested substantial resources in developing the platform.
In December 2020, Robinhood’s marketing activity drew the attention of the Massachusetts Securities Division. They said the platform exposed customers to “unjustified trading risks” and “did not meet fiduciary standards”.
In the same month the SEC secured a $65 million payment from Robinhood for misleading users by claiming the service did not charge trading commissions.
In July 2021 the online broker agreed to pay a record $70 million fine to settle a dispute with the U.S. Financial Industry Regulatory Authority.
In October of that year Robinhood added 24/7 phone support for users.
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