Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Practice Management

Robinhood Open to Reviewing Arb Policy, It Tells Sen. Warren

Your article was successfully shared with the contacts you provided.

Robinhood Financial has 24 customer arbitrations pending against it, and “is open to reviewing” its mandatory arbitration policy, Lucas Moskowitz, deputy general counsel and head of government affairs at Robinhood Markets Inc., told Sen. Elizabeth Warren, D-Mass.

On Feb. 2, Warren probed Robinhood CEO Vladimir Tenev in a letter as to why the brokerage firm “abruptly changed the rules” for retail investors by restricting trades and imposing other limits during the frenzy in GameStop and other heavily shorted stocks the week of Jan. 25.

Warren asked Tenev for a response to numerous questions by Feb. 9.

Moskowitz’s letter, dated Feb. 12, was sent to Warren as well as to Acting Securities and Exchange Commission Chair Allison Herren Lee, and Robert Cook, CEO of the Financial Industry Regulatory Authority.

Moskowitz told Warren that “Robinhood has been in regular communications” with the SEC, FINRA and other self-regulatory organizations regarding the recent market volatility events.

In her Feb. 2 letter, Warren cited reports that at least 18 lawsuits have been filed against Robinhood in the last week, with some “seek[ing] damages on behalf of other aggrieved investors” related to the Reddit GameStop squeeze.

Stated Warren: “Secretive arbitration processes deny customers a fair hearing, undermine public accountability, and hamper efforts to assemble a thorough and complete understanding of events.”

Warren asked Robinhood how many consumer complaints it has “fielded from customers that were required to use the arbitration process to address their concerns.”

Stated Moskowitz in his letter: “Under the operative customer agreement and consistent with FINRA regulations, all RHF customers agree to adhere to the terms of the pre-dispute arbitration clause.”

As of Feb. 11, he said, “there are 24 arbitrations pending.”

Robinhood Financial, Moskowitz stated, “is open to reviewing its use of arbitration and will continue to be guided by what is in its customers’ best interests with respect to resolving customer complaints.”

Warren stated that while she hopes “Robinhood follows through on its statement that it is open to reviewing its use of forced arbitration, the SEC should ban these harmful and exploitative clauses outright.”

Robinhood’s response to her letter, Warren continued, “reveals that the company did not have enough cash on hand to manage a surge in trading and buried important information about consumers’ rights. Robinhood promised to democratize trading, but hid information about its prerogative to change the rules by cutting off trades without notice — and about customers’ inability to access the courts if they believe they’ve been cheated — behind dozens of pages of legalese.”

What’s still not clear from Robinhood’s response, Warren continued, “is the full extent of Robinhood’s ties to giant hedge funds and market makers.”


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.