Less than a week into the new year, a 27-year-old Connecticut truck driver may have given up Robinhood
a whole new thing to worry about in 2022.
On Jan. 6, an arbitrator from the Financial Industry Regulatory Authority ruled that the commission-free trading platform was liable to Jose Batista, a retail investor who filed a complaint with the industry's self-regulatory body in May, for $29,460.77 in damages due to suffered significant investment losses following Robinhood's decision to limit trading in certain meme stocks at the height of the manic short squeeze in January 2021.
The ruling is the first of its kind to end with Robinhood paying money to a retail investor because of its trading restrictions, and could provide a blueprint for other retailers hoping for exoneration from Robinhood.
For starters, Batista's case against the $13 billion online broker was narrow and specific, focusing on how the restrictions were affecting its shares in headphone maker Koss
and fashion brand Express Inc.
unlike his entire portfolio.
"I remember that day, it changed my life," Batista said in an interview with MarketWatch. "I was just trading on the day trying to get momentum."
Batista said he also trades in big meme names like GameStop
at the time, but had no intention of selling these, although he had become willing to sell stocks that he believed might have peaked.
Jose Batista with his mother.
"My plan was to sell Koss and Express that day," Batista said. "I had a lot, but nobody could buy it."
On Jan. 27, the day before Robinhood and other online brokerages imposed trading restrictions, Koss closed at $58 a share and Express at $9.55.
Batista, who only had access to one Robinhood account at the time, became increasingly desperate to trade his shares into some frothy meme stocks, knowing that investors who would have liked to buy at a premium just couldn't .
"You basically left me no choice," Batista said of Robinhood. "They said, 'You're just stuck. If you want to sell it. Sell it.'"
On February 1st, the day Robinhood reopened trading memes, Koss closed at $35 and Express at $5.
"It was hard to watch," Batista mused.
Unlike seven other retail investors who have so far taken their grievances to the regulator, Finra agreed that Batista's experience was too crude to be entirely fair.
Connecticut-based public adjudicator John James McGovern Jr. wrote in his finding that Robinhood's two divisions, Robinhood Markets and Robinhood Financial, are "jointly and severally" liable for Batista's losses.
For Batista's attorney, Jorge Altamirano of Iorio Altamirano LLP, the monetary reward holds more meaning; Show retail investors the right way to hold Robinhood accountable.
"There was a lot of noise around all the conspiracy theories," Altamirano explained, citing various civil lawsuits trying to prove that Robinhood had colluded with its main market maker, Citadel Securities, to restrict trading and protect hedge funds shorting meme stocks. The Securities and Exchange Commission investigated such allegations and found them to be lacking in evidence.
Altamirano and Batista, consistent with their narrow approach, did not engage in conspiracy theories about the trade restrictions and stayed true to the details of Batista's case.
"Finra has shown here that they are willing to decide a case on this matter," Altamirano said. "This opens the door for other investors to revisit that day (in January) and maybe take action."
The idea that Batista's $30,000 could grow into something bigger — like a spate of damages taking a big chunk out of Robinhood's legal citadel — might be exciting for the legion of "monkeys" still furious about January 2021, but after all, an expert sees the situation more moderately.
"This award has no precedent, and Finra tends to do whatever it takes in this type of arbitration," warned Francis Curran, securities litigation attorney for Kudman Trachten Aloe & Posner.
Still, Curran saw how a Finra umpire might have been compelled by the specificity of Batista's allegation, and that Robinhood, who Finra had already been fined multiple times, including a record $70 million fine in June 2021, the Kind of clumsy dealer hurt it was designed to attract, even if it helped fuel up and then unplug the meme stock short squeeze.
"I think it's too early to tell if it's the first trend," Curran said. "But it definitely needs to get Robinhood's attention."
And that attention has already been a little scattered in recent months.
Robinhood, which declined to comment on the story, has faced a falling share price, increased competition and ongoing concerns since its IPO in July that the SEC could change order flow payment rules in 2022, which is what threatens a large part of its business model.
A clue as to how 2022 is shaping up could be a closer look at Batista himself.
While $30,000 may seem like a paltry sum for Robinhood, it's real money for Batista, who said it will go a long way to supporting his young family alongside his trucking income while he continues to invest in the market .
"I'll definitely keep trading," said Batista, who maintains a stunted Robinhood account but now primarily trades with a competing app, Webull. "To me, these aren't meme stocks. I'm just observing the dynamics. I take 10 stocks and watch all day.”
Speaking of meme stocks…
Like the markets, both GameStop and AMC Entertainment
bounced back from the huge drops in early trade, but with wildly mixed results.
While AMC managed to mostly reverse a morning 7.4% decline and close Monday down 0.9%, GameStop reversed a morning 14.2% plunge to end the session down 6.7 %.
It was the same story for most memes that day, except for the MAGA meme crowd.
Shares in the so-called "Trump SPAC" Digital World Acquisition Corp
up 3.6% on the day, driving a huge afternoon jump for the Nasdaq and its supporters'…unique investment thesis.
Interest Rates and Meme Stocks: What's Up?
In the latest episode of MemeMarkets, we spoke to Bespoke Invest's George Pearkes about what the rising interest rate environment means for the most popular tickers on social media.
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