In what might represent the first in a long series of lawsuits, the Financial Industry Regulatory Authority (FINRA) ruled that Robinhood was liable for almost $30,000 in damages to a retail investor following losses he suffered due to the trading app’s trading restrictions of certain stocks last year.

                By                    Yaёl Bizouati-Kennedy

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In his claim against Robinhood, Jose Batista, a 27-year-old retail investor, asserted breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty, unjust enrichment, non-disclosure or concealment, intentional interference with prospective economic advantage and negligent interference with prospective economic advantage, according to the FINRA filing.

“The causes of action relate to Respondents placing trade restrictions on numerous stocks on Jan. 28, 2021, including, but not limited to “KOSS” and “EXPR” on its trading platforms in the midst of an unprecedented stock rise,” FINRA said, awarding Batista $29,460.77 in compensatory damages.

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“The award also offers hope to the thousands of Robinhood users who may now see a potential road to recovering their investment losses and encouraging news that arbitration panels are willing to hold online broker-dealers accountable,” Altaminaro added.

Retail traders on the subreddit group WallStreetBets, who were intent on taking down hedge-fund short-sellers by buying shares of stocks that didn’t seem to have much of a chance of success, were unable to trade stocks, including GameStop, AMC Entertainment and Bed Bath & Beyond.

What makes Batista’s case different and might set a legal precedent is that it is narrow and specific, choosing to focus on how the restrictions impacted his shares in headphone maker Koss fashion brand Express Inc. as opposed to his whole portfolio, MarketWatch explains.

In turn, the platform could potentially be at risk of facing an avalanche of similar laser-focused cases, although some experts say that this might not be Robinhood’s foremost issue.

“It faces a much bigger problem — coming up with a new source of revenue to pick up the slack from declining crypto revenue,” Cohan said. “The FINRA judgement was a very specific case where the client could prove how much he lost due to Robinhood trading restrictions on those stocks.”

“The $30,000 amount that Robinhood has to pay would be small change even if 1,000 clients were able to get a similarly favorable arbitration decision,” he added.

In June, FINRA fined Robinhood $57 million and ordered the firm to pay approximately $12.6 million in restitution, plus interest, to thousands of harmed customers. The sanctions represent the largest financial penalty ever ordered by FINRA and reflect the scope and seriousness of the violations, the regulator said in a statement at the time.

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“Robinhood has invested heavily in improving platform stability, enhancing our educational resources and building out our customer support and legal and compliance teams. We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all.”

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