robinhood bromance

Trading In The Time Of Covid: A Robinhood Bromance

Aug 30, 2021

Introduction In ancient times, circa 1960, an investor would dial his stockbroker on a rotary phone, place an order to purchase shares in IBM stock, the broker would call his trader on the floor of the NYSE, the trader would make a bid to the specialist for the shares, the buy order would be matched with an order to sell, the trade would be recorded with a pencil and a scrap of paper, the order would be filled, the stock certificate would be sent through the mail, and the investor would hold the shares for decades. Not so anymore. Every aspect of investing has changed. The types of securities sold, the proliferation of exchanges, and the disparate trading systems have altered the ways in which the business of securities trading is conducted. 1 And, the era of algorithms and electronic high speed trading, 2 coupled with individual investors’ ease of access to the markets through apps and trading platforms, has drastically changed the nature of trading securities. With that, the profile of the individual investor has also morphed. Suffice it to say, “Its not your father’s stock market anymore.”  An App Is Born The shift to discount brokerage firms and internet trading through platforms like E*Trade and Charles Schwab opened the markets to include a *160 new breed of individual investor seeking to make investments on their own without the use of a traditional broker. Historically, although some products were commission free, these “DIY” online trading firms generally charged commissions on every stock trade. 3 The creators of Robinhood Financial LLC (“Robinhood”), Vlad Tenev and Baiju Bhatt, two young engineers who met while studying at Stanford, saw an untapped opportunity in the niche of younger investors who did not have large sums of money to invest. The duo, who were creating software for hedge funds and other firms enabling high frequency trading, noticed that online brokerage firms had a stronghold on investors in their 40s and 50s but were failing to capture younger, less profitable investors who had smaller sums to invest. 4 They were struck by the economics, where institutions were paying fractions of a penny for trading and transactions, but where the everyday retail investor would cough up $10 in fees for executing a single trade on other platforms. In creating their platform, Tenev and Bhatt estimated that there were approximately 1.5 million individual active traders trading securities more than 10x per month–and that this could add up to thousands of dollars each year to the then existing online brokerage firms. 5  After two years of development and raising $16 million in funding, Robinhood had 500,000 potential users on a waitlist before its “official” launch on the iOS Apple Store on December 11, 2014. 6 Most users were under the age of 30. 7 The mission, and the name of the company, derive from the founders’ *161 stated goal to create “products that would provide everyone with access to the financial markets, not just the wealthy.” 8  The app took off immediately. In 2015, the first full year of its existence, Robinhood executed $2 billion in trades. 9 […]

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Financial Fraud

How to Protect Yourself from Financial Fraud During COVID-19?

May 24, 2021

During the COVID-19 pandemic, individual investors–especially young ones– have sought to profit from the volatile securities markets. Mostly, this has been done through purchasing individual stocks or options through brokerage apps such as Robinhood.

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COVID-19 market crash

You May Be Entitled to COVID-19 Market Crash Loss Recovery

May 11, 2020

For the past few years, stocks have been going up and stock market indices have continued to reach new highs. The stock market crash of 2020 erased years of gains and caused billions of dollars of equity to be lost. While millions of investors have lost billions of dollars, not everyone who has lost money due to the coronavirus market crash has a claim against their broker. In fact, many losses occurred simply as a result of a market decline. However, some investors may have claims against their brokers or their brokerage firm if they lost money due to the broker’s negligence or a brokerage firm’s misconduct. Our experienced Former Wall Street Attorneys can evaluate your case and let you know if you are entitled to file a claim seeking to recover your market crash loss recovery. Please call us today or use our online contact form, for a free consultation.  Are You Retired or Saving For College or Retirement & Lost Money in the 2020 Market Crash? If you are a retiree, who is living on a fixed income or who has only one source of income such as social security or a pension, you often cannot return to work to earn the money to replace your investment losses. Even if you are not a retiree, certain investors, especially those with limited assets or who need their funds to pay for their kid’s college, their parents, or who are saving for retirement themselves may also be conservative investors who do not want their money or a particular account exposed to stock market risk. If you are one of these types of conservative investors and lost money, it may have been invested in unsuitable investments and thus you could have a valid claim to recover your stock market losses. The most common type of claim for such investors is that their money was invested in a way that did not meet their objectives. This type of claim is called “unsuitability.” Unsuitable investing is often raised as a claim for retirees living on a fixed income or other conservative investors who did not want to be, and should not have been, exposed to stock market risk. Even Experienced Investors Can Have Stock Market Loss Claims. Even experienced or so-called sophisticated investors can have claims when the risks of investing were too extreme or were not adequately disclosed or understood by the broker. A broker has a “reasonable basis” suitability obligation to every client. According to the Financial Industry Regulatory Authority, the reasonable-basis obligation is critically important because, in recent years, securities and investment strategies that brokers recommend to customers, including retail investors, have become increasingly complex and, in some cases, risky. Brokers are required to understand the securities and investment strategies they recommend. A broker has an obligation to (1) perform reasonable diligence to understand the nature of the recommended security or investment strategy involving a security or securities, as well as the potential risks and rewards, and (2) determine whether the recommendation is suitable for at least some investors based on that understanding. A broker must adhere to both components […]

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COVID-19 margin calls

Investors To Sue Over COVID-19 Margin Calls

May 4, 2020

Many individual and institutional investors received bad news this spring— large margin calls. According to the Financial Times, these investors are preparing possible legal actions against U.S. banks active in wealth management. This is unwelcome news to such banks who routinely offer margin loans to their customers, such as JPMorgan Chase, UBS, and Goldman Sachs. According to the Financial Industry Regulatory Association  (“FINRA”) investor purchases of securities on margin averaged over $592 billion during the first 10 months of the last year. Merrill Lynch, Morgan Stanley, UBS, and Wells Fargo all reported increases in their client loan balances last year.  What Claims Do I Have for and Improper Margin or Margin Call? There are several ways investors can recover on claims relating to improper margin or margin calls. If losses were incurred as a result of securities being sold on a margin call, it may be possible to make a claim asserting that the broker or firm should have first asked the customer to pay the loan through another source, deposit in more cash or securities, or allow the customer to choose what investments to sell to pay the margin call. It is also possible to bring a claim for losses if the margin loan given to the customer was an unsuitable investment strategy or too risky for the investor’s objectives. Finally, if a brokerage firm has sued you to collect on an unpaid margin loan, there are a number of defenses to this claim which can be raised. Please call us today or use our online contact form, for a free consultation.  How Does a Margin Call Work? A “margin account” is a type of brokerage account in which the broker-dealer lends the investor cash, using the account as collateral, to purchase securities. Margin increases an investor’s purchasing power but also exposes investors to the potential for larger losses.   The mechanics of how a margin call works are simple. When stocks fall, brokers can be forced to call up clients and ask for more cash or securities to secure the margin loan. Under some contracts, brokers can sell the investments in the account to pay the margin loan even without first calling the client.  The Securities and Exchange Commission has published an investor alert explaining to investors how margin accounts work.  You Should Understand How Margin Works Margin loans are a tool that allows customers to leverage their accounts to make a greater return. Let’s say you buy a stock for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you’ll earn a 50 percent return on your investment (your $25 gain is 50% of your initial investment of $50). But if you bought the stock on margin – paying $25 in cash and borrowing $25 from your broker – you’ll earn a 100 percent return on the money you invested (your $25 gain is 100% of your initial investment of $25). You may also owe your broker interest on the $25 you borrowed. There is a downside to using margin, which is […]

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beware of fraudulent investments related to COVID-19

Beware of Fraudulent Investments related to COVID-19

Apr 20, 2020

The Commodity Futures Trading Commission (“CFTC”) has recently issued a warning to investors to be on the lookout for scams seeking to take advantage of recent COVID-19 related market volatility. The Securities and Exchange Commission (“SEC”) has also issued a recent warning to investors to be especially vigilant in investing in microcap stocks where brokers or promoters claim that a company’s products or services can help stop the coronavirus.   According to the SEC, fraudsters often use the latest news developments to lure investors into scams. There have been a number of recent Internet promotions, including on social media, claiming that the products or services of publicly-traded companies can prevent, detect, or cure coronavirus and that the stock of these companies will dramatically increase in value as a result. The promotions often take the form of so-called “research reports” and make predictions of a specific “target price.” The SEC urges investors to be wary of these promotions and to be aware of the substantial potential for fraud at this time When it comes to options investing, recent market volatility may cause fraudsters to try to promote options or futures strategies to take advantage of this market. This too has special risks which investors should be aware of. It is true that some types of options do allow traders to hedge against market risk. For example, historically, gold futures and other precious metals have seen short-term increases in times of economic uncertainty. And, over-the-counter digital asset or foreign exchange (forex) traders may be able to identify pairings that go up in value when other markets are in decline.  However, the CFTC warns that there is no such thing as a risk-free strategy, and no person or program can guarantee future results. Also, you should know that all risks, fees, and expenses should be disclosed to the investor upfront.  According to the CFTC, here are things you should look out for: If it Looks to Good to Be True, It Probably is Trading and investing come with a number of biases and emotions that influence decision making. Recent market losses due to the impact of COVID-19 may motivate some traders to recoup losses, while others may seek safety. Fraudsters know this and design their pitches to appeal to these instincts. Examples include claims of special insider knowledge or insights, promises of unusually large returns, guarantees, surefire trading signals, or low costs to open accounts. And these offers are timed to hit your inbox or social media feed when you are most interested. The common advice is “if it looks too good to be true, it probably is.” But frauds are often successful because they do look good. The problem, even for experienced traders, is that when biases get in the way, they make it difficult to recognize what’s too good.  Experienced Investors Can Often be Scammed Numerous studies have revealed that those who are more financially literate and experienced are more likely to be victimized by investment fraud. It could be correlation: Those who are more financially literate are more likely to trade and therefore more likely to encounter fraud. Or, as some researchers […]

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borker fraud

Fraud in the Time of COVID-19: Red Flags of Investment Fraud

Apr 6, 2020

Whenever there is a stock market crash, such as in the COVID-19 stock market crash, fraud that has been hidden for years can come to the surface. This is particularly true for investment scams. This happened with Bernie Madoff. The stock market crashed, and people wanted access to their money. That was when they learned from the first time that the money they thought that they had safeguarded with Madoff was, in fact, just an illusion. It turned out that Madoff was running a plain old Ponzi scheme. When no new money was coming in to pay off old investors, Madoff’s multi-year Ponzi scheme finally came to light. The Coronavirus market crash will bring to light many investment wrongs and fraudulent or negligent conduct which has gone undetected during the great bull market. As long as investments were going up, many investors were not fully aware of unsuitable investments, improper margin risk, or fraudulent conduct. Scams Can, and Do, Happen Sadly, there are always going to be people who try to take advantage, who try to take shortcuts, who try to make an easy dollar, who try to cash in even if it means taking advantage of others. It does not matter whether you are a novice with finances or a very sophisticated investor. There are unscrupulous people out there, and when it comes to money, people often make the wrong, even criminal, choice. Of course, that is the reason why we have laws, and why there are regulatory bodies like the Securities and Exchange Commission (“SEC”) or FINRA to try to protect investors from the unscrupulous practices of some investment brokers.   That said, it is infinitely better to “nip something in the bud” before it becomes a problem that requires using FINRA, filing a lawsuit, or calling the authorities. The way to avoid investment scams, then, is to keep a sharp eye out for those “red flags” that tell you that there is something fishy going on. Below, we will discuss the 5 red flags of investment fraud that should help you separate those above-board investment brokers with those who might be trying to take advantage of your trust.     If, after reading this blog, you have additional questions on broker negligence or broker fraud, we invite you to contact broker fraud attorney Melanie Cherdack. Ms. Cherdack is a broker fraud attorney who understands the plight of those who were victims of investment fraud. As a former Wall Street attorney, she has “seen it all” when it comes to the schemes that investment brokers use to defraud their clients. We invite you to contact us today on our online contact form, or by calling 888-768-2499. 1. Promises of Unrealistic, Guaranteed or Excessive Returns. This first red flag is an important one to keep in mind. It is just human nature to want to believe something when it comes to growing your finances, even if it sounds too good to be true. Even the most stable investments will fluctuate when the market is volatile or is in “bear market” territory as the market is in now.   So, when your investment advisor […]

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margin call in your brokerage account

Has the Stock Market Crash Forced a Margin Call in Your Brokerage Account?

Mar 30, 2020

When the stock market quickly moves down, as it has been doing during the coronavirus market crash, you may find yourself in a situation where your stocks are sold to pay back a loan that a brokerage firm made to you. This is called a “margin call.” A margin loan is a loan that the brokerage firm makes to you that is secured by the investments in your account. Some people do not even know that they have a margin in their brokerage account, and only first become aware of this fact when they are forced to pay a margin call or maintenance call. Many new account documents that you are asked to sign when you open a brokerage account allow for the securities firm to make a margin loan to you for the purchase of securities in your account. Therefore, you should review your brokerage account statements carefully to determine if you have a margin debit or a margin loan in your account. The Securities and Exchange Commission has published an investor bulletin explaining to investors how margin accounts work.  The Difference Between Cash and Margin Accounts A “cash account” is a type of brokerage account in which the investor must pay the full amount for securities purchased. An investor using a cash account is not allowed to borrow funds from his or her broker-dealer in order to pay for transactions in the account.   In contrast, a “margin account” is a type of brokerage account in which the broker-dealer lends the investor cash, using the account as collateral, to purchase securities. Margin increases investors’ purchasing power but also exposes investors to the potential for larger losses.   You Should Understand How Margin Works Margin loans are a tool that allows customers to leverage their accounts to make a greater return. Let’s say you buy a stock for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you’ll earn a 50 percent return on your investment (your $25 gain is 50% of your initial investment of $50). But if you bought the stock on margin – paying $25 in cash and borrowing $25 from your broker – you’ll earn a 100 percent return on the money you invested (your $25 gain is 100% of your initial investment of $25). You may also owe your broker interest on the $25 you borrowed. There is a downside to using margin, which is riskier than a cash account. If the stock price decreases, you can quickly lose your money. For example, let’s say the stock you bought for $50 falls to $25. If you fully paid for the stock, you’ll lose 50 percent of your money (your $25 loss is 50% of your initial investment of $50). But if you bought on margin, you’ll lose 100 percent (your $25 loss is 100% of your initial investment of $25), and you still must come up with the interest you owe on the loan. Many investors cannot afford to takes this type of gamble with their funds. Your […]

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coronavirus pandemic

What If I Can Not Reach My Broker During The Coronavirus Pandemic?

Mar 23, 2020

The recent events of the coronavirus pandemic have caused a great dislocation of office workers and many securities professionals have been ordered to shelter in place or remain at home. What if you are trying to reach your broker regarding your account? With the stock market in turmoil, how does this affect you as a brokerage customer? During an emergency or pandemic, each broker-dealer is required to notify its customers as to how they may contact their financial advisor, broker or the brokerage firm. There are business continuity rules in place during a pandemic requiring securities firms to protect their customers. Under special guidance put in place during the COVID-19 pandemic, your brokerage firm is required to put a notice on its website indicating to all of it affected customers who they may contact concerning the 1) execution of trades; 2) their accounts; and 3) access to funds or securities in their accounts.  The Financial Industry Regulatory Authority (“FINRA”) requires that each member securities firm have a Business Continuity Plan (“BCP”) which sets forth how the firm can be contacted by its customers during an emergency like the coronavirus pandemic. FINRA’s recent regulatory guidance, for communicating with customers during the pandemic states: Communicating With Customers FINRA understands that member firms may experience significantly increased customer call volumes or online account usage during a pandemic (e.g., due to significant market movements), which may cause temporary operational challenges. Member firms are encouraged to review their BCPs regarding communicating with customers and ensuring customer access to funds and securities during a significant business disruption.     If registered representatives are unavailable to service their customers, member firms are encouraged to promptly place a notice on their websites indicating to affected customers who they may contact concerning the execution of trades, their accounts, and access to funds or securities. Supervisory control policies and procedures should be considered that will mitigate risks that may arise due to the reduced ability to communicate with customers, inability to rely on the mail or other disruption to the existing controls over communications with customers.  Under this regulatory guidance, brokerage firms are required to tell their customers who they may contact if they want to execute trades (such as buy or sell orders) or to discuss their accounts or access funds or their investments. Additionally, brokerage firm management is required to take steps to ensure that risks are reduced with respect to any inability to communicate.  These rules were developed after a series of disasters and emergencies to make sure that you as a customer are able to access your broker, your securities account and your funds. A History of Disasters Led to the Development of Special Emergency Rules  In the aftermath of 9/11, FINRA implemented rules requiring member firms to have a business continuity plan (“BCP”). This Rule requires members to establish emergency preparedness plans and procedures including a BCP. Importantly, each broker-dealer member must disclose to its customers how its BCP addresses the possibility of a future significant business disruption. This rule was in place during Hurricanes Rita and Katrina and the BCP guidelines were tested based upon real-life […]

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Investment losses

Can I Sue My Financial Advisor for Investment Losses?

Mar 16, 2020

We are currently in a phase of massive market fluctuation. As is clear now, if it was not apparent before, the market is highly sensitive to world affairs, political changes, and global crises. The collective emotions surrounding the current worldwide Coronavirus pandemic, and the response from government and international agencies around the world, is certainly being reflected in the financial markets. That is, of course, the risk you take when investing your money in the market. However, remember that you are taking a calculated risk.   Expected Market Risk vs. Unexpected Fraud or Mismanagement by a Financial Advisor You know, as all investors know on some level, that the long-term financial returns of investing in the market typically outweigh any short-term losses. But there is always some risk involved. That is why it is good practice to invest regularly, try to have your financial advisor balance your portfolio so you can hedge some of your bets against an economic downturn, and try to manage your stress and concern during major market volatility of the kind that we are currently experiencing due to the Coronavirus.  All that being said, the kind of risk we do not account for is when your financial advisor does something that is not in your best interest, and/or when your broker or advisor puts their interests above yours. That is not the ordinary, to-be-expected, kind of investment risk. Rather, that is a wrongful act on the part of your broker or financial advisor for which you can obtain damages through a lawsuit or arbitration.   So, the short answer to the question, “Can I sue my financial advisor for investment losses?” is “Yes.” In this article, we will discuss the reasons for using your broker or financial advisor, and the mechanics of how to get your “day in court” when you are the victim of investment fraud, negligence or mismanagement.   If, after reading this article, you have additional questions on any investment fraud matters, we invite you to contact investment loss attorney Melanie Cherdack. Ms. Cherdack is an investment loss attorney who understands the plight of those who were victims of investment fraud. She has “seen it all” when it comes to the schemes that investment brokers use to defraud their clients.   To learn more about whether you need an investment loss attorney for your current situation, then we invite you to contact us today on our online contact form, or by calling 888-768-2499. We are the investment fraud lawyers who are leveling the playing field for you.     There Are a Number of Reasons That Will Support Legal Action Against Your Financial Advisor Losing money due to market fluctuation is, simply put, the risk of investing. Losing money due to wrongful conduct on behalf of your financial advisor, however, may provide grounds to take legal action against him or her. Here are some common reasons why an investor will take legal action against a financial advisor or broker. 1. Outright Fraud. Selling fake securities or products; or not using your money to buy securities at all. 2. Broker Negligence. Investing your money in a way that is not […]

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