Mar 4, 2020 - Economy & Business

Expect lawyers to take aim at Robinhood

Photo: Rafael Henrique/SOPA Images/LightRocket via Getty Images

After Morgan Stanley last month agreed to pay $13 billion for E*Trade, deal-makers began buzzing that Robinhood could be the next discount domino to fall. Particularly on the heels of Charles Schwab agreeing to buy TD Ameritrade for $26 billion.

What's new: Robinhood does now have a target on its back, but the archers are more likely to be lawyers than potential acquirers.

Driving the news: Robinhood's no-fee trading platform went dark for all of Monday, thus none of its users were able to profit from the day's record-breaking gains. It also was down for the first couple hours of trading yesterday, before returning online.

  • The San Francisco-based company, most recently valued at $7.6 billion by venture capitalists, initially said that the problem was related to how its systems "communicated" with each other.
  • It then took nearly 24 hours for Robinhood to provide a slightly more detailed explanation about how its DNS system cracked under the weight of record volume and account sign-ups. No apology, nor any pledge to conduct a third-party audit.

If this sounds bad, that's because it is bad. It's also the stuff that class-action dreams are made of. Imagine how much money wasn't made by those who tried to use Robinhood on Monday — or at least how much those users can claim wasn't made.

  • Moreover, this didn't happen in a vacuum. As Axios' Felix Salmon notes, Robinhood in late 2018 announced a checking account that it was soon forced to unannounce it. In 2019, users found a glitch that gave them "infinite leverage," and the company was fined $1.25 million for not giving its users the best prices on stocks.

What they're saying: Some Robinhood investors tell me that this too shall pass, and that the company's clean user interface, cash management function, and loyal millennial user base will see it through the storm.

  • They also note that Robinhood's new account growth actually accelerated after many of its incumbent rivals moved to no-commission trades.

The bottom line: Robinhood's success spurred a high-priced consolidation wave that its recent errors may cause it, and its investors, to miss out on.

Go deeper: Another fiasco for Robinhood

Go deeper

Another fiasco for Robinhood

Illustration: Sarah Grillo/Axios

Millions of stock and options traders were effectively shut out of the market for all of Monday as well as two hours of early trade on Tuesday.

Driving the news: The culprit was Robinhood, a fast-growing stock-trading platform that inexplicably face-planted on a day when trading volume surged and the stock market rose by 4%.

Robinhood reports outage as markets rebound

Photo: Smith Collection/Gado/Getty Images

Robinhood, a free-trading investment management app, said it experienced an outage as U.S. markets opened on Monday, Bloomberg reports.

Why it matters: The outage cut Robinhood users out of Monday morning's stock rebound of more than 2%, the first gain in eight sessions.

How wrinkles in time mess with our computer systems

Illustration: Sarah Grillo/Axios

When the popular free-stock-trading app Robinhood went offline Monday and Tuesday, Twitter wags immediately opined that programmers must have failed to account for this year's quadrennial Leap Day, which fell on Saturday. The firm eventually denied that scenario, pinning the crash on simple infrastructure overload.

The big picture: But it wasn't a bad guess. Calendar quirks have always been a predictable source of software bugs. We think of the measurement of time as a science, but it is also a human art, encrusted with customs, exceptions and historical quirks.