The legendary character Robin Hood famously robbed from the rich to give to the poor in medieval England. In the 21st century, a popular investment company calling itself Robinhood has been accused of taking advantage of the poor and lying to its customers.
Robinhood Financial, L.L.C., is one of the fastest-growing financial companies in history. Launching in 2013, the company recently announced it had reached $11 billion in value, driven partly by its mobile app, which uses a video-game-like interface to make buying and trading shares fast, easy and attractive.
However, charges filed recently by the Securities and Exchange Commission alleges that the company falsely advertised that it charged nothing for trades. Robinhood has agreed to pay $65 million to settle the charges.
A lawsuit filed by the state of Massachusetts claims that the company has breached its fiduciary duty to its customers. The state claims that Robinhood’s app encourages users to trade more often than they should, resulting in practices that risked the customers’ money. Robinhood has said it rejects the claim.
Heavy regulation
The securities industry is heavily regulated under state and federal laws. The Securities and Exchange Commission, or SEC, is the main federal agency that oversees securities trading.
Securities trading can be both public and private. A public offering of shares in a business must go through a process overseen by the SEC. The institutions offering the shares must provide extensive documentation. Lawyers and other analysts look over the documents to ensure the businesses and institutions involved are telling the truth to their investors.
In a private offering, securities are offered to a select group of customers. This type of offering does not require a disclosure to the SEC, but it does require a disclosure to the potential investors.
Securities litigation
Despite all this regulation, brokers and others engaged in securities trading sometimes engage in shady practices that can lead to investors losing a lot of money. When this happens, securities lawyers can help investors with fraud claims against brokerages and others.
Sometimes these cases go to trial in state or federal courts. However, brokerage agreements often require investors to pursue claims through arbitration rather than trial.
Compared to trial, arbitration has advantages and disadvantages. One big advantage is that arbitration is generally less expensive. However, a decision in arbitration does not set a legal precedent and is often kept secret through nondisclosure agreements. As a result, even claimants who win and get their money back may feel disappointed that they did not have the satisfaction of seeing the other side publicly shamed and rebuked by the court.
Those who feel brokerages and other securities firms wronged them should talk to lawyers with securities law experience to learn more about their options.