Robinhood Faces Class Action Lawsuit Over March Outage

Plaintiffs Jared Freedland, David Kostenko, and Romeo Toro filed a class action complaint against Robinhood, a popular securities investing and trading app, in relation to a March outage that has already resulted in many lawsuits.

The plaintiffs claim that Robinhood falsely advertised its app as “reliable” and that users can “trade in real time.” They highlighted the app’s outage during March 2-3 and 9, when “investors using its platform were unable to execute trades.” They also note that the outages occurred during the COVID-19 pandemic, which has impacted the stock market and economy. The plaintiffs said, “investors’ losses were, predictably, higher as a result of Robinhood’s outages than they likely would have been but for such volatility.” They also alleged that Robinhood breached a contract with its users because it failed to “provide access to their accounts, equities, and money, though Defendants nonetheless received consideration from Plaintiffs and other Class members in the form of order flow data, interest, account fees, and fees.”

Freedland noted the importance of the ability to “access” and “control” investments during this time. As a result, “Mr. Freedland lost approximately $1300, instead of making approximately $100 in profit that he otherwise would have realized from that option. Defendants’ outages caused Mr. Toro to miss a trade and thereby lose approximately $47,000 in profit. Defendant’s outages caused approximately $2000 in losses to Mr. Kostenko, not including any profits he potentially could have made.” The plaintiffs also said Robinhood acknowledged that “[t]he outages you have experienced over the last two days are not acceptable.” While Robinhood stated it was addressing the problem and was upgrading its infrastructure, more outages occurred.

The plaintiffs sought class certification for their complaint. Questions of fact and law common to the potential class, defined as “All Robinhood accountholders within the United States as of March 2, 2020,” include: Whether the “trading platform was inadequate to handle reasonably foreseeable demand”; if Robinhood “failed to provide contingencies to customers to execute timely trades in the event of an outage”; if Robinhood violated “Financial Industry Regulator Agency (FINRA)” rules, consumer protection laws, breached “legal, regulatory, and licensing requirements,” breached contracts with Class members and their fiduciary duties, was negligent, unjustly enriched, if Class was injured by Robinhood’s actions and if Plaintiffs and Class are entitled to relief.

The plaintiffs alleged that Robinhood breached its fiduciary duties because the company failed to provide adequate access to its app and financial services in a timely fashion as a result of the outage and allegedly inadequately built and maintained app. They claimed that Robinhood was grossly negligent as evidenced by the outage; they allegedly failed to provide financial services via the app as a result of their poor technology, which did not account for market demand or fluctuations and stability. They concluded that Robinhood did not “exercise reasonable care” as expected to provide a suitable trading platform.

The suit was filed in the Northern District of California. Plaintiffs are represented by Ahdoot & Wolfson.

Unlike other class actions that Robinhood has faced, this lawsuit does not focus on the fact that March 2 was a record trading day; instead, it focuses on the volatility of the market in light of COVID-19 and the need to access and control one’s investments. Robinhood has faced 33 federal lawsuits since March. While most lawsuits have been categorized as contract disputes, other case types include fraud, product liability, and personal injury.