E*Trade Class Action Says Negative Crude Oil Prices Broke Site

E*Trade Securities and E*Trade Futures are being hit with a class action lawsuit saying that an avoidable technical glitch caused e-traders to lose thousands of dollars on oil trading when crude oil prices went into the negative for the first time.

Three e-traders, Benjamin Whitesides, Aziz Is Hadj Mohand, and Matthew Cheugh say that a war between Russia and Saudi Arabia, plus the effects of the coronavirus pandemic, led oil prices to go into negatives for the first time in history earlier this year.

Allegedly, E*Trade Securities did not warn its customers that oil prices could go into negative numbers, nor did the brokerage sufficiently test its online platform for how it would perform in such a circumstance. 

This combination of elements led traders to be unable to make trades through their E*Trade account on the Securities site, they state. The traders say that this, in turn, caused them to lose thousands of dollars on oil trading. The e-traders go on to say that the problem with the site effectively locked out users from using the site. This prevented them from trading, and persisted through the end of the day. 

The e-traders explain the nature of E*Trade, describing it as an online brokerage firm. Reportedly, the company owns a website that customers can use to place securities trades. This can either be done by using the company’s app or by calling a help center maintained by the company, not the traders. They explain that this system allows customers to buy and sell securities — reportedly, this includes future contracts. A futures contract is a legal agreement between two parties to buy and sell a commodity for an agreed-upon price at a specific time in the future.

The traders explain that E*Trade is distinctive because it has allowed amateur investors to buy and sell trade commodities, including oil. Firms like E*Trade have taken steps recently to make these commodities available to amateur investors, but previously, they were largely inaccessible to retail investors.

In the case of Whitesides, Mohand, and Cheugh, they state that they purchased “e-mini futures” from the brokerage. These contracts are struck using cash, as opposed to being settled with oil, they explain. They seek to represent not only themselves, but a Class of all other e-traders who purchased these futures from the company. 

They say that because of the brokerage’s conduct, they and the rest of the proposed Class Members were financially injured.

Allegedly, they would have made different choices about their trading if they had received proper information about the possibility of oil prices going into negative numbers and if the site had functioned properly and had allowed them to trade.

The E*Trade account class action lawsuit explains that on April 20, crude oil prices went into the negative.

For example, West Texas Intermediate (WTI) crude oil futures were selling in the negative, at -$37.63. Allegedly, these futures serve as a benchmark for others. 

Allegedly, E*Trade’s system was not prepared to handle this negative pricing, and did not display accurate prices when the oil futures prices went into the negative.

The site supposedly locked out users from making trades on their E*Trade account at a pivotal moment. The traders explain that May contracts were set to expire on April 21. Because they were unable to make trades through the site, they were not able to buy and sell futures contracts on WTI through the website, the app, or the call center.

The crude oil prices e-trading class action lawsuit says that E*Trade could have anticipated the possibility that oil prices could go into the negative, but did not communicate this to traders. For weeks, the company was aware that market conditions could take oil prices into the negative, they note.

Allegedly, the company “openly ignored multiple red flags from the relevant exchanges.” Additionally, industry experts reportedly informed the company that they could test how their site would perform in negative prices, but failed to do so before the prices dropped, the traders assert.

To make matters worse, the company then did not handle the crash of their site well, after the fact, say the traders. They say that they and many others were unable to reach any help from the company to use their E*Trade account and deal with the effects of the negative crude oil prices.

Have you ever used an e-trading platform? Did you run into technological glitches? Share your experiences in the comments below.

The e-traders are represented by Brian S. Kabateck, Christopher B. Noyes, and Joana Fang of Kabateck LLP; Robert J. Girard II, Omar H. Bengali, and Steven M. Buha of Girard Bengali APC; and Michael Gatto of Actium LLP.

The E*Trade Account Price Drop Class Action Lawsuit is Benjamin Whitesides, et al. v. E-Trade Securities LLC, et al., Case No. 3:20-cv-05803, in the U.S. District Court for the Northern District of California. 

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