The End of Robinhood: Lawsuit.

hey everyone me kevin here something has

gone absolutely horribly wrong

at robinhood and in this video we're

going to go through what the heck is

going on at robinhood in this massive

lawsuit facing robin hood folks first in

case you don't know on january 28 2021

there was a massive short squeeze a once

in a decade style short squeeze led by a

retail trading movement to squeeze the

short sellers or people who sell a stock

into oblivion and crush them by

basically making them buy the stock back

at much more expensive pricing

thanks to them losing

billions of dollars in margin calls

because the stock was going to the moon

and that's what was happening on january

28th stocks like amc and gamestop were

skyrocketing

absolutely going to the moon

but all of a sudden in the middle of

this once in a decade short squeeze

robinhood who's supposed to take from

the rich and give to the poor

potentially

colluded

with the rich companies like citadel or

melvin capital

whatever and ended up preventing the

poor from making money against the rich

by

turning off their ability

to buy stocks like gamestop and amc in

fact you're going to hear a lot about

this because this is called pc owing

position close only or moving stocks to

position close only in this particular

lawsuit that we're going to go through

robinhood was not the only brokerage

that did this you had td ameritrade

weeble and other brokers who also had to

move certain positions to a pco and

that's because in the whole clearing

world there are these other agencies and

companies and corporations that can

demand certain deposits from companies

like robin hood or td ameritrade or

weeble or whatever and these deposits go

up based on the levels of risk that are

currently in the market and on january

28th the morning of january 28th the

levels of risk were so high in the

market because certain stocks like

gamestop and amc had gone so

ridiculously high so crazy high that

risks of a potential financial collapse

were clearly imminent

that specific corporations and agencies

like the dtcc required massive deposits

from companies like robin hood and we

boom fidelity and they then decided to

move certain stocks to position close

only which basically

forced people to no longer be able to

buy shares of companies like gamestop

and amc and when we're in a short

squeeze we know that momentum keeps a

short squeeze going but if you can't buy

the stock you can't keep the momentum

going and then all of a sudden the

stocks came crashing down

much to the benefit of wealthy companies

that were getting burned like citadel

and to the demise

of retail traders like you and i

folks in this video we're going to look

at the lawsuit and i want you to ask

yourself if you're the judge looking at

this case

could you possibly first of all put on

an impartial hat and not try to burn

robin hood to the ground before hearing

the case

well it's up to you but in this video

what i'm going to do is i'm going to

start by showing you the counts against

robinhood count one negligence

negligence what does this mean

negligence is basically saying that

robin hood had a duty to make sure its

platform was up and would not fail but

remember other platforms were shut down

as well and or trading for certain

stocks were shut down as well so this is

gonna be a good defense for robin hood

it's pointing to the other brokers it

wasn't just robin hood why robinhood's

gonna have to come out with statistics

and big old math to go this was a a

three sigma event which is a fancy way

of saying it's a one in like five

million chance of happening uh and and

uh they might make the argument that it

was a one in ten sigma event that this

this whole short squeeze happening was

something you could have never prepared

for now usually what does negligence

mean well negligence usually means

by example that you did something stupid

but you didn't think you were going to

hurt someone that you should have known

better but you didn't actually think you

were going to hurt someone so negligence

as a judge is it possible that robin

hood was negligent in what happened let

me give you an example let's say you're

in the middle of a desert and there's a

stop sign four-way stop you're going 80

miles an hour nobody's around you're

like f that i'm going through that stop

sign and you blow that stop sound real

hard but then you cause an accident that

is negligent you didn't think you were

going to cause a problem but you're kind

of stupid and you made a mistake anyway

and you caused an accident that's a

negligence the argument here from the

plaintiffs is robin hood you stupid you

should have never had to be pushed into

the situation where you would ever ever

ever

have to cl put move stocks to position

close only it's not fair you should have

been capable robin hood again is going

to have to defend with statistics going

this was a statistical probability we

could have never known that that stop

sign was there that's going to be the

argument we'll see what the judge says

but the next count that i have is gross

negligence now gross negligence goes a

little further that's like saying you

literally saw

families pushing strollers in that

four-way stop and you decided to floor

through it anyway that's grossly

negligent that's like you knew what you

were doing is bad that's like a doctor

prescribing somebody penicillin when in

the medical file it says they're

allergic to penicillin

very very very bad okay that that that

would potentially crush crushed

robinhood is a grossly negligent uh

you know claim uh actually

being a guilty or becoming a guilty

verdict breach of fiduciary duty this

one's a little bit of a stretch and

we'll see we're going to go through the

arguments in the moment here so for

example when i'm a real estate agent and

i'm selling a house that's i have a

fiduciary duty to my client if the

client if the house is crap i need to

tell my client that like don't buy this

house i've done that before as a broker

but stock brokers and stock brokerages

don't have this obligation they don't

have as many fiduciary duties they have

some there was regulation bi that passed

that that created some but usually this

only applies to brokers who are actually

trading on behalf of their clients it's

kind of like hey i'm going to take your

money invested for you that might create

some like standards or suitability

standards that require you to have to

elevate your uh your care for your

client and there are differences between

fiduciary and suitability we're not

going to get into that in this video

because it's not what this is about

robinhood doesn't invest in clients

money it's a trading platform and so

this lawsuit is trying to allege yeah

but

you all basically were fiduciaries for

your clients you should be fiduciaries

this would be a huge change for the

brokerage industry like every broker

would probably have to dramatically

increase their fees if they were deemed

to be fiduciaries because now they're

basically responsible for making sure

that when you're yolo option trading

you're not doing something that's stupid

and could hurt yourself and fiduciary

again means brokers have to tell you

things even if it means they make less

commissions which in some senses is good

especially if you're you're really

advising your client you're an advisor

but for a trading platform i don't know

does anybody actually think of robinhood

as an advisor

i mean i don't think of robin hood as an

advisor but we'll see that's an

interesting one then they also suggest

implied duty of care and they go through

these complaints that hey robin hood's

gamifying the platform you know they're

doing the sparklies and the confetti and

stuff when you buy okay fine let's get

into the juicy stuff more importantly

though and this is going to be where

where it gets a little bit fun so

this lawsuit starts off by saying this

case is about the extreme divergence

between the professed belief about how

robin hood actually runs its business

basically they're saying hey we thought

one thing about robinhood it's actually

something else and they specifically

talk about january 28th which is worth

noting if you type into youtube right

now robinhood banned sec

and the state it's you're going to see a

video from me from may 12th where i

break down a massive massive sec

settlement with robin hood for

shenanigans that rob and i have screwed

up with in the past

but

those

that settlement had to do with

everything leading up to january 28th

2021 january 28 2021 is still on the

table for the sec so you can bet the sec

is going to be watching this lawsuit

here but let's get to some of the juicy

stuff here uh because again this is

where you're going to see by suspending

one side of the transaction they

basically hurt retail traders okay but

we want to get to some of the juicy

stuff here some of the juicy stuff here

that i found and i highlighted this to

make it simple and we're going to

streamline this

one of the things was here robin hood

product manager recognized the danger of

the pco policy we're going to get

crucified for pc owing and i wrote oops

quote david says we are too big for them

to actually shut us down in other words

this is a reference to remember how i

said certain agencies required large

deposits from robinhood like they can't

shut us down uh yeah but they could

actually make you uh shut certain stocks

down by making the deposit requirements

insanely high so some of this is like ah

was robin hood at fault or is robin hood

the face of this right and that's going

to be a big big big out for robin hood

in this case like was it would robin

hood have have had to change these

things if robin hood

uh didn't have these crazy requirements

imposed on them

from like the the dtcc right anyway but

they say here we're going to get

crucified for this and look at the time

5 35 a.m like an hour before the market

opens right 55 minutes for pc owing now

uh then they they say here that uh

contrary to ceo vlad tenef's assertion

the events at issue in this case are not

aptly described as a black swan or five

sigma event robin hood was knowingly

pushing the envelope under the

assumption that it was untouchable this

is an interesting counter argument that

they're making because they already know

what robin hood's going to allege

they're basically saying hey you guys

were cavalier you thought when you went

to go run that stop sign you were gonna

be okay it's an interesting argument

they're making here

and they're even using the fact that

robinhood ramped up its marketing while

the platform was redlining

as an argument against robin hood now

this i don't know if i could say that

because the gamestop short squeeze

really began kind of like on i mean it

began earlier in january but things in

terms of redlining really started like

things started really going nuts around

january 24th to 25th uh and full

disclosure i own robin hood stock but

i'm gonna totally be a bully here okay

and we're gonna we're gonna tear into

robin hood where they're wrong i'm just

gonna be very very transparent i do own

some robin hood stock uh and uh at the

beginning of january i was a robin hood

affiliate because for the first time

ever robin hood gave people the

opportunity to get four free stocks with

robin hood that was insane they and they

started that agreement i want to say at

the end of december and then they

started the actual like offer somewhere

around january 19th and it was supposed

to go from the 19th through the 31st

which why does that matter because a lot

of statistics show that robin hood's

usage like skyrocketed

and there was this big inflection point

up in its user base

right around the end of january when

this debacle was happening but it was

also the first time ever that robin hood

did hey sign up and get four free stocks

with robinhood they used to have this

get one free stock thing

four free stocks was crazy was the only

time they ever did that and they got

affiliates on board like youtube or

content creators it was insane so uh but

that again happened before the short

squeeze

it's just kind of interesting though

because robinhood's like hey look we

went through this crisis and our user

base still skyrocketed yeah well that

you had a massive marketing campaign

that you've never had before and now

this lawsuit is using that against you

guys uh but i don't know how fair that

is again though because that marketing

campaign happened uh and was decided

well before this whole short squeeze

stuff again i know because i was one of

the affiliates and again i stopped

pitching them during this whole gamestop

disaster because that would be

ridiculous but anyway

so 10f points to making the ultimate

call in pcoeing

but this is very interesting take a look

at this one robin hood security's

president and co and ceo

james

swart wow

okay whatever the ceo said in an

internal chat on january 26th i sold my

amc today fyi tomorrow morning we are

moving gamestop to 100

position close only so you're aware

like that's shady okay this right here

that's shady

but the problem with this is i wonder

how much of this stuff happens like this

is

the cosy or the coo of robin hood should

not be trading amc on what's happening

internally at robinhood that

particularly here is shady so it's not a

surprise that they bring this up right

away that's a big oopsies and that

individual by the way should get smacked

by the scc and probably will for that by

the way and it's not going to help

robinhood in this lawsuit now here's

where things start going cookies on

january 25th 2021 robinhood securities

received an nscc daily margin statement

from the dtcc remember these are those

crazy corporations that basically

provide those requirements of how much

capital you have to have on january 25th

robin hood need to post it or needed to

post 11 million dollars not a big deal

reflecting vola volatility on the same

day they upped the amount robin hood

needed to post to 74 million dollars no

problem robin hood did this and did this

even though same day they got a big bump

robin hood fulfilled it the next day on

the 26th they got a requirement that we

need 85 million dollars robin hood

posted it on the 27th they got a notice

that robin hood actually had a surplus

of 11 million dollars things that

settled down a little bit on later on

the 27th they mentioned that the nscc

may be making intraday calls for

additional capital and

that on the 27th at 10 32 p.m robin hood

sent an internal email saying that robin

hood needed to borrow 3 million 300

million for the parent to cover cash

deficit mainly driven by these clearing

corporations so robinhood this makes

sense businesses have open lines of

credit that they'll that they'll draw on

and then they'll take that money and use

it for you know day-to-day purposes and

then when they get the money back from

like these deposits they pay off the

credit lines makes sense but on january

28th at 5 11 a.m they were told they

needed 3 billion

which keep in mind the prior days they

had high volatility they needed look at

this up to 400 million dollars this is

when they borrowed 300 million dollars

like oh my gosh all of a sudden that's

like a lot of money they have the

availability of funds but when they got

the three billion dollar requests and

if an intraday call is made all deficits

must be received within an hour of the

notice of this letter you can kind of

see here that a lot of burden is coming

from the dtcc which that's gonna be a

big out for robin hood but anyway robin

hood here says okay that's it we're

gonna pco position close only meaning

retail buyers can't buy amc gme nokia

and blackberry because we aren't paying

three billion dollars worth by basically

pc owing this they can reduce the margin

requirements from like three billion

dollars probably to like 600 million

dollars or whatever see look at this uh

three billion dollars

uh we aren't paying three billion

dollars worth so by pc owing these four

symbols they were able to bring the

margin required down to 600 million

dollars this lawsuit is basically saying

hey robinhood you should have had three

billion dollars available and there was

a big thing that i already made a video

about it was a big thing about robin

hood's ceo on the 29th saying we are not

facing a liquidity crisis on cnbc but

the day before on the 28th an internal

executive said we're facing a liquidity

crisis

and it's worth noting

that on the 28th

robin hood

executives didn't have the money

but on the 29th robin hood raised over 2

billion dollars from investors

and i was able to get the money they

needed uh to make sure they they had

plenty here actually oh my gosh they

ended up in two days they raised 3.4

billion dollars in just two days

now this is interesting because the

lawsuit is using not only

the the misleading nature of one

executive saying hey we have a liquidity

crisis and then the ceo the next day

saying well no we don't we don't have a

liquidity crisis on cnbc uh

and that's possibly because they raise

the money right

they are taking this a step further the

plaintiffs and they're saying hey look

why didn't you just raise the money on

the morning of so that way you didn't

have to pco why didn't you just if you

could raise 3.4 billion dollars in two

days why didn't you do it on that day

and why didn't you keep gamestop and amc

alive why did you crush retailers dreams

in a once in a decade short squeeze

interesting argumentation here right

so anyway

i'm summarizing some things because this

is an 80 page lawsuit worth noting by

the way that in another lawsuit there's

even talk about executives at robinhood

getting on a call with citadel because

take a look at this there's anecdotal

evidence this is in a robinhood chat

internal chat there's anecdotal evidence

that several very large firms were

having really bad nights too and fyi

that dan and i are joining jim at 5 p.m

on a call with citadel this is robin

hood execs they reached out and want to

speak this evening and we believe that

they will make some demands

on limiting payment for order flow

across the board we won't agree to

anything but wanted to give you a heads

up vlad even mentions this might be a

time for me to chat with ken griffin

which this is where we have to talk

about the fact that ken griffin after

this whole debacle happened in january

testified before congress and when he

was bluntly asked did you collude with

robin hood he said no

now a lot of folks are like come on man

the definition of collusion is cooperate

in secret in an unlawful way okay maybe

not unlawful right

cooperate in secret

in order to deceive or gain advantage

over others that part i could see now

the unlawful thing tbd we'll find out in

courts right there could be more civil

implications here rather than criminal

implications

but

colluding

is cooperating in secret in order to

deceive or gain an advantage over others

there's an argument to be made there

abso freaking lootly so you know was

there collusion with with robin hood

well

i don't know if he should have said no

he should have probably i mean i don't

think he should have said yes because

that's admitting guilt and that would be

like dumb

uh but he probably should have said

something like hey we had multiple

conversations with robin hood we don't

think having conversations with our

client rises to the level of collusion

but him saying bluntly no

and that when when you know the record

shows they did have meetings now were

those secret meetings i mean they

certainly weren't public meetings right

uh was it done to deceive or gain

an advantage over others or was it done

in the ordinary course of business well

that's uh tbd however in the court of

public perception as was trending on

twitter

ken griffin lied and this has led to

massive allegations that potentially

robin hood colluded with citadel which

is basically

think about like a collusion like a

cartel where a cartel gets together and

says hey we're going to do this to screw

somebody else now in fairness robin hood

does payment for order flow and some of

that flows through citadel citadel is a

service provider for robinhood which

makes robinhood a client of citadel

in fact over here you can see robinhood

makes a lot of money with payment for

order flow but it's not just them in

june for example june 2021 they made 21

million dollars in payment for order

flow in january which is when this

crisis happened they made 47 million

dollars in payment for order flow from

op or from from equities so from shares

and from options in january 2021 they

made 65 million dollars and you could

kind of compare this to other companies

here

robin hood makes the most money from

payment for order flow from options but

not the most money from uh from shares i

believe at least presently they don't

presently td ameritrade beats them on

shares but anyway they make a lot of

money from payment for order flow and

citadel is one of the companies that

provides this so there's going to be

argumentation that there was even

collusion between

citadel and robin hood but remember they

have a client uh relationship a business

relationship not that necessarily makes

a difference but uh folks i want to ask

you

do

does what happened with robin hood rise

to the level of negligence say this in

the comments negligence did robin hood

fail by not having enough money should

they have raised three billion dollars

earlier to even if they got to this

extreme situation they could have

prevented the disaster even though other

brokers did the same thing should robin

hood have raised that money sooner

did vlad lie when he said we didn't

don't have a liquidity crisis even

though the executive the day before said

we have a liquidity crisis

they did raise 3.4 billion but was that

a lie by vlad so you got yourself did

vlad lie was there collusion between

citadel and robin hood despite their

client uh and service provider

relationship was there collusion between

the two to stop these trades or was it

the dtcc in the nscc and their margin

requirements that screwed robin hood

into the situation i don't know maybe it

was a little bit of both that's the

thing things aren't usually black or

white and that's where a judge is going

to have to come in and this is where i

want to ask you leave a comment down

below was robin hood negligent they ran

the stop sign thinking everything was

going to be okay

were they grossly negligent they ran the

stop sign knowing things were probably

not going to be okay but they did it

anyway

or

is this

a totally not guilty for you do you

believe that robin hood should be

totally off the hook here because it

wasn't their fault that this was a five

sigma event a one in three and a half

million chance of happening or whatever

and ultimately should robin hood be let

off the hook for this

well folks let me know in the comments

down below but this gives you a little

bit of insight into what the heck is

going on with robinhood thanks so much

for watching folks and we'll see in the

next one

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