Robinhood Class Action Alleges Harmful System Crash

UPDATE: On Oct. 5, 2020, allegations that the Robinhood app outage cost investors are overbroad and “free of detail,” according to the online trading company in a motion to dismiss the case.

A system failure on Robinhood, an online stock trading platform, was caused by the company’s negligence, according to a class action lawsuit filed in California federal court.

Lead plaintiff Colin Prendergast claims that he and other Robinhood customers were barred from advantageous investments due to a system outage that crashed the platform on March 2, 2020, lasting for more than one day.

According to the Robinhood class action, Prendergast noticed that $3,000 in his investments on Robinhood were losing money; however, he when he went to sell them, he was unable to, resulting in more money lost.

“Robinhood is an online brokerage firm. Its customers place securities trades through the firm’s website, by using a web-based application or ‘app,’ or by calling the firm’s help center,” explains the Robinhood class action lawsuit. “Robinhood permits customers, when its trading platform is operational, to purchase and sell certain securities, including option contracts.”

In a nutshell, Robinhood customers install the web-based application on their smart device and are able to very easily buy and sell stocks and other investments, often with a few swipes of the screen.

According to the Robinhood class action lawsuit, the March outage on the trading platform not only restricted customers from buying and selling securities, like stocks, it also made it impossible for customers to contact Robinhood customer service.

“This loss of access to Robinhood’s trading platform and absence of customer service support caused concrete, particularized, and actual damages for Robinhood customers, like Plaintiff, who held options contracts expiring during the Outage,” states the Robinhood class action lawsuit.

“As a result of the Outage, Plaintiff and members of the class proposed below were unable to exercise their option contracts or trade them to capitalize on gains or to mitigate losses. Most of those contracts thus expired unexercised and worthless.”

According to the Robinhood class action lawsuit, the online trading platform has suffered from a history of outages, although none more serious than the March 2 outage.

The plaintiff says Robinhood neglected its obligation to maintain an adequate infrastructure for customers and its failure to do so lead to the major March 2 outage.

“Due solely to its own negligence and failure to maintain adequate infrastructure, Robinhood breached obligations owed to plaintiff and class members and caused them substantial losses,” contends the Robinhood class action lawsuit.

“Its failures are all the more serious due to Robinhood’s history of such failures, the magnitude of the outage, the absence of alternative means for customers to protect their investments and lack of communication and customer support.”

Prendergrast claims that, during the outage, he was unable to contact any customer service support, despite many attempts to do so.

He says that he wanted to sell his options, but was barred from doing so due to the app’s failure.

To make matters worse, alleges the complaint, Robinhood sold his “puts” without his authorization during the outage for $30 and credited his account.

“Puts” or put options are contracts that allow the owner to sell or short sell an amount of an underlying security during a pre-arranged time frame.

The Robinhood class action lawsuit notes that the platform has apologized for the outage. However, despite these apologies, the platform allegedly experienced additional outages later that day.

This is the second Robinhood class action lawsuit filed over the March 2 outage. In a Florida federal court, another plaintiff says that he and other customers were unable to access the New York Stock Exchange for all but a few minutes of the day that happened to feature the biggest point gain in a single day.

In other news, Robinhood has reportedly paid into a $1.25 million settlement over charges made by the Financial Industry Regulatory Authority that the platform’s brokers were optimizing trades. However, despite these scandals, the platform has also been incredibly successful and was reportedly valued at $7.6 billion in 2019.

The California Robinhood class action lawsuit seeks to represent a nationwide Class of those who held an option contract through their Robinhood trading account that expired during the March 2 outage.

Were you affected by the March 2 Robinhood outage? Did you lose money or lose out on an investment opportunity? Tell us your story in the comment section below!

The lead plaintiff and proposed Class Members are represented by William R. Restis of The Restis Law Firm PC and Joseph J. DePalma, Steven J. Greenfogel and Jeremy Nash of Lite DePalma Greenberg LLC.

The Robinhood Class Action Lawsuit is Prendergast v. Robinhood Financial LLC, et al., Case No. 5:20-cv-01877, in the U.S. District Court for the Northern District of California.

Read More Lawsuit & Settlement News:

Beware of Coronavirus Money Mule Scams

What Does the 9/11 Victim Compensation Fund Pay For?

ICE Detainees Ask For Release Due to Coronavirus Risk

Can One Exposure to Asbestos Kill You?