How One Investor Beat Robinhood in FINRA Fight
What You Need to Know
The investor’s victory is likely to create a “headache” for Robinhood, law professor Benjamin Edwards says.
One key to the FINRA arb decision: Having experienced lawyers arguing the case.
Lawyers argued that Robinhood was guilty of negligent liquidity risk management.
Last week’s unprecedented victory for an investor in his Financial Industry Regulatory Authority arbitration dispute with Robinhood was achieved, at least in part, by having lawyers experienced with securities cases representing him and the decision to claim the firm was guilty of “negligent liquidity management,” according to a legal expert and one of the attorneys who represented Batista.
A FINRA arbitrator on Jan. 5 ordered Robinhood to pay $29,460 in compensatory damages, plus interest and fees, to Jose Batista, an investor who alleged he suffered investment losses as a result of the robo-advisor’s decision to restrict trading in GameStop and other select stocks on Jan. 28, 2021, in reaction to trading frenzy surrounding the stocks.
“The case stands out as an outlier because Batista is the first to recover damages against Robinhood in the FINRA arbitration forum,” Benjamin Edwards, associate professor of law at the William S. Boyd School of Law at the University of Nevada, Las Vegas, pointed out Tuesday on Twitter.
Although the FINRA arbitrator, as usual, did not specify why he reached his decision, Edwards pointed to “one major difference: representation. Batista had a lawyer,” one who specializes in claims against brokerages and financial advisors.
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The law firm Iorio Altamirano filed the FINRA arbitration claim on Batista’s behalf. At the arbitration hearing, attorneys Jorge Altamirano and August M. Iorio represented the investor.
In most of the other cases against Robinhood, investors have opted to try and make their cases without the help of legal counsel, Edwards noted.
It also helped that Batista had an attorney “familiar with the forum,” Edwards told ThinkAdvisor on Wednesday.
Although Nathan Volheim, an attorney at Sulaiman Law Group in Lombard, Illinois, represented investors in a few disputes with Robinhood, FINRA arbitrators ruled in favor of Robinhood in those cases.
Edwards told ThinkAdvisor he reviewed the cases where Volheim appeared in FINRA awards. “It’s impossible to know exactly what happened or what arguments were made simply based on the awards” in those cases, Edwards said.
But Edwards said: “My review of the Volheim decisions showed that he had brought some fraud and unfair competition claims” — arguments quite different than the one made in the Batista case. Volheim did not immediately respond to a request for comment Thursday.
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Liquidity Management
“Firms are supposed to be prepared for extreme market conditions and had Robinhood put in place effective funding and liquidity risk management practices to enable it to meet its obligations during times of stress and volatility, it would not have had to cut off market access to customers,” Iorio told ThinkAdvisor Wednesday.
