An investor’s victory over Robinhood last week in a Finra arbitration case involving last year’s meme-stock trading halt could provide a road map for future claims, although experts caution that it’s too early to tell.
Nearly a year ago, Robinhood restricted transactions in certain stocks as a result of unprecedented volume during a trading frenzy involving GameStop and other shorted stocks. Since then, several investors have filed claims against the online brokerage in the Financial Industry Regulatory Authority Inc.’s arbitration system for losses related to the trading interruption.
Robinhood had an undefeated record on those claims until Jose Batista, a 27-year-old truck driver, prevailed on Jan. 6. A sole Finra arbitrator ordered Robinhood to pay Batista $29,460.77 in compensatory damages.
Batista argued that when Robinhood placed prohibitions on purchasing stocks of some publicly traded companies on Jan. 28, 2021, it caused the value of those shares, including Koss and Exper, which Batista held, to plummet.
“We were thrilled for Mr. Batista and his family that the arbitrator really made it right,” said August Iorio, a partner at Iorio Altamirano who represented Batista. “We think this is a groundbreaking win in the industry, and we hope to see more like it.”
When news about the award got out early this week, Iorio’s phone started to buzz with inquiries from aggrieved investors. He said he received more than 100 calls on Tuesday.
“Now there’s an overwhelming interest,” Iorio said.
A Robinhood spokesperson declined to comment.
Arbitration hopefuls shouldn’t get too excited about their chances of winning, experts said. In the Finra arbitration system, individual decisions don’t set a precedent, and there’s no case law to guide arbitrators.
“It’s still early,” said Christine Lazaro, a professor at the St. John’s University School of Law and director of its Securities Arbitration Clinic. “It’s hard to predict future outcomes based on one decision.”
Batista’s win isn’t necessarily a harbinger of more victories for Robinhood investors because their claims could be different from his, said Andrew Stoltmann, a Chicago securities attorney.
“Each of these cases is so fact-specific that you can’t read too much into this,” Stoltmann said.
Iorio’s winning approach could be a strategy that is adopted in other claims against Robinhood. He said the key was taking a conservative approach and following where the discovery process led. The case included two hearing sessions.
Rather than trying to prove Robinhood halted trading in some sort of collusion with a third party, Iorio argued that it used flawed liquidity and risk management leading up to the trading halt. It wasn’t prepared for the volatility that hit last January, and that caused significant investor losses.
“These online broker-dealers have a responsibility to investors beyond providing the [trading] platform,” Iorio said.
Stoltmann said that proving Robinhood was involved in a conspiracy related to the trading restrictions would be difficult.
“It may look good on paper, but there’s a proof problem,” he said.
The trading-restriction cases pose challenges because they’re not typical suitability disputes.
“It’s a hard claim to articulate,” Lazaro said. “It’s not a claim that arbitrators typically see.”
Iorio cited causes of action that often are found in Finra arbitration claims, such as breach of contract, breach of fiduciary duty and unjust enrichment.
“It helps when an attorney can frame the claim using language arbitrators will be familiar with in other types of securities cases,” Lazaro said.
Most of the investors who have lost their claims against Robinhood represented themselves, but three were represented by Nathan C. Volheim. Volheim did not respond to a request for comment.
Batista’s claim was heard under the special proceeding option for simplified cases. It could be a year before the bigger ones are decided, Lazaro said.
Robinhood could fare better in those cases. Or maybe Batista has provided a pathway for investor success.
“The more cases that go to hearing, the clearer the playbook will become on how to beat them like a pinata,” Stoltmann said. “Robinhood has to be careful not to sprain its wrist patting itself on the back for its early wins.”
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Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.