FinTech: Robinhood’s Outages on Two Historic Trading Days – Lawsuits Emerge
Robinhood’s systems crashed on three occasions, of which two were spectacular trading days.
Robinhood, the broking startup that amassed millions of users through its offers of commission-free, no-minimum-balance trading, has been slapped with a lawsuit. The lawsuit relates to Robinhood’s system outage on March 2, 2020, the day when the Dow added a record 1,200 points. It was the Dow’s largest one-day point gain — throughout its entire 124-year history. (The Tokenist)
The trading app’s technical infrastructure was unable to handle the surge in volumes. Its 10 million users were, therefore, locked out of a monster rally. The firm blamed the outage on an “unprecedented load” triggered by market volatility, leading to exceptional technical problems.
Travis Taafe, from Tampa, Florida, filed a class-action lawsuit against Robin Hood, seeking over $5 million in damages.
According to Attorney Michael Taafe, who is also the plaintiff’s father, Robin Hood’s 10 million users are potential class members. “This was preventable,” he said. “We want to make sure that they get backup systems in place so something like this doesn’t happen again.”
Unfortunately, it did.
Robinhood was down again on March 3, and thereafter on Monday, March 9. The latter was a black day for stocks. The DJIA tanked 2,000 points and the sell-off triggered market circuit breakers minutes after the day’s open.
So, three trading blackouts – two on trading days that investors will long remember.
Robinhood’s customers are primarily younger and not so well-off. Though their trading accounts may be smaller, these users are especially vulnerable in such situations. “That money is more likely to be important to customers’ livelihoods—a dangerous recipe when technical systems fail,” observes Gregory Barber in Wired.
“This entire experience has me wondering if I should cut my losses and move my money out of the market and back into my savings account…but like somebody who keeps buying scratch-off tickets at the gas station in the case today’s their lucky day, I might just leave a little money in there just in case,” says Drew Millard in TheOutline.com.
Jake Baumann, a Robinhood customer in Argyle, Texas, lost $15,000 because he was unable to exercise “put” contracts due to the trading blackout on March 9. He may move his business from the platform unless Robinhood compensates him suitably.
Related Story: Robinhood Valuation Hits $7.6 Billion after Recent Funding
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