An investor’s victory over Robinhood last week in a Finra arbitration case involving the suspension of meme shares last year may provide a roadmap for future claims, although experts warn it is too soon to know.
For nearly a year, Robinhood restricted trades in some stocks as a result of unprecedented volume during a frenzy trading frenzy between GameStop and other short-selling stocks. Since then, several investors have sued online brokerages in the Financial Industry Regulatory Authority’s arbitration system over losses related to the trading interruption.
Robinhood had an undefeated record in those claims until Jose Batista, a 27-year-old truck driver, was victorious on January 6. A sole arbitrator ordered Finra Robinhood to pay Batista $29460.77 in damages.
Batista argued that when Robinhood banned the purchase of shares of some publicly traded companies on January 28, 2021, it caused a drop in the value of those shares, including Koss and Exper, that Batista owned.
“Mr Batista and his family were thrilled that the arbitrator did indeed correct the matter,” said August Iorio, partner at Iorio Altamirano who represented Batista. “We think this is an industry-leading victory, and we hope to see more like it.”
When news of the award emerged early this week, Iorio’s phone began to shock with inquiries from affected investors. He said he received more than 100 calls on Tuesday.
“Now there is a lot of interest,” Yorio said.
A Robinhood spokesperson declined to comment.
Experts said the refereeing hopefuls shouldn’t be too excited about their chances of winning. In the Finra arbitration system, individual decisions do not set precedent, and there is no judicial act to guide arbitrators.
“It’s still early days,” said Christine Lazaro, a professor at Saint John’s University School of Law and director of the Securities Arbitration Clinic. “It is difficult to predict future outcomes based on a single decision.”
Chicago securities attorney Andrew Stoltman said Batista’s victory is not necessarily a harbinger of further wins for Robinhood investors because their claims may differ from his.
“Each of these cases is so specific to the facts that you can’t read much into this,” Stoltman said.
Iorio’s winning approach could be a strategy adopted in other claims against Robinhood. The key, he said, was to take a conservative approach and follow where the discovery process led. The case included two hearings.
Rather than trying to prove that Robinhood stopped trading in some kind of collusion with a third party, Yorio argued that it used flawed liquidity and risk management that led to the halting of trading. It was not prepared for the volatility of last January that caused huge losses to investors.
“These online brokers and merchants have a responsibility to investors that goes beyond providing [trading] Yurio said.
Stoltman said it would be difficult to prove Robinhood was involved in a trade-restriction conspiracy.
“It might look good on paper,” he said, “but there’s a proof problem.”
Trading restrictions pose challenges because they are not typical controversies over suitability.
“It’s a claim that is difficult to articulate,” Lazaro said. “It is not a claim that arbitrators usually see.”
Yorio cited causes of action often found in FINRA arbitrations, such as breach of contract, breach of fiduciary duty and wrongful enrichment.
“It is helpful if the attorney can frame the lawsuit using language arbitrators who will be familiar with other types of securities cases,” Lazaro said.
Like most investors who lost their lawsuit against Robinhood themselves, but three are like Nathan C. Fullheim. Fulheim did not respond to a request for comment.
Batista’s claim was heard under the special procedure option for simplified cases. It may be a year, Lazaro said, before a decision is made on the largest.
Robinhood could be better off in those cases. Or perhaps Batista provided a path to investor success.
“The more issues that are heard, the clearer the game’s guide on how to beat it like a piñata,” Stoltman said. “Robinhood must be careful not to twist her wrist patting her back for her early victories.”