With everything that happened in 2021, there is no shortage of people who have had bumpy rides this year. But, arguably, few companies have had as much of a roller coaster as Robinhood.
An online brokerage that popularized $ 0 commission trading, Robinhood has grown exponentially in recent years. In the first quarter of 2021, it had around 18 million funded accounts, and the news of its initial public offering (IPO) was creating a substantial buzz.
But 2021 didn’t quite go as planned for the brokerage. A series of disasters in the first half of 2021 put Robinhood in the spotlight – for all the wrong reasons. And it doesn’t look like the broker’s year is going to get any better anytime soon.
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A series of class actions
Last January, a group of retail investors came together on Reddit and hatched a plan: buy shares in a number of popular companies that were on the brink. The resulting stock purchases have skyrocketed several companies, including GameStop and AMC. This left the big investors, who were selling these stocks, angry.
At some point in the trading frenzy, Robinhood – which had been the primary tool for many small retail investors – decided to stop trading for several of the so-called memes stocks. The result was, as you might expect, customer outrage. And outraged consumers in a litigious company ultimately mean legal action.
To date, Robinhood has faced dozens of class action lawsuits from disgruntled customers. Even if the broker ultimately gets the lawsuits dismissed – an outcome that is by no means guaranteed or even probable – lawyers are the only real winners.
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In its IPO last month, Robinhood admitted that the lawsuits were an ongoing issue that could have serious repercussions on the business: the business, the financial condition or the results of operations.
A record fine from FINRA
Sadly, these lawsuits aren’t Robinhood’s only legal issues. At the end of June, the company was fined nearly $ 70 million from the Financial Industry Regulatory Authority (FINRA) – $ 57 million in fines and $ 12.7 million in restitution to customers . This is the biggest financial sanction in the history of the regulator.
In its statement, FINRA referred to years of regulatory and neglect issues dating back to 2016. Robinhood has also been called out for deceptive clients, with FINRA saying the broker has cost clients around $ 7 million because of his “misrepresentations”.
Another large sum of money set aside for clients was the result of Robinhood’s trading interruptions in March 2020, a period of extreme market volatility. FINRA found that the company’s two-day outage was costing customers more than $ 5 million.
An extremely volatile IPO
Just under a month after its landmark FINRA judgment, Robinhood finally launched its much-discussed IPO and once again found itself making headlines – and not in a good way.
Launched under the ticker HOOD, Robinhood initially received a massive $ 32 billion valuation, and hopes were high that it would see a strong open. Unfortunately, at the end of its first day, the company’s shares have fallen 8% from its opening of $ 38 per share, and many speculators have called the IPO a flop.
As Robinhood rallied – it peaked at over $ 70 a share earlier this week – it experienced great volatility. So much so, in fact, that he was forced to stop trading in his own shares at some point.
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Amid all the chaos, many experts questioned whether the increase was lasting or just fluke. And the questions continued as the CEO of Robinhood sold about $ 45 million in shares (1,500,000 shares in total) shortly after its IPO. Investors began to wonder if the massive selloff was a sign of bigger issues behind the scenes.
At the very least, the CEO’s actions illustrate a bit of hypocrisy within the company; The “turnaround” – selling stocks within 30 days of an IPO – is actually frowned upon by Robinhood and may prevent users from participating in a future IPO.
As the last trading day of the week approaches, Robinhood stands at just over $ 50 a share, having suffered a steady decline from its high on Wednesday. It remains to be seen where the business will land once volatility subsides.
An unpredictable future
It would be an understatement to say that Robinhood has had a busy year. Between its legal and financial woes, the broker also faced some tough knocks for its overall reputation. And the volatility and questions surrounding its IPO didn’t help matters much.
Despite all of this, however, Robinhood’s future may still be bright. Among the many participants in the broker’s IPO, there were over 300,000 Robinhood users. While this represents less than 2% of its funded accounts, it could be seen as a sign that some users, at least, have confidence in the company’s ability to withstand its current issues.