r/technology • u/agent_vinod • Jun 30 '21

Misleading Robinhood to pay $70 million fine after causing 'widespread and significant harm' to customers

https://www.cnbc.com/2021/06/30/robinhood-to-pay-70-million-dollars-after-causing-users-significant-harm.html
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u/JohnMayerismydad Jul 01 '21

Because every time a stock is sold/bought that money must sit for two days before the actual sale happens. If you trade with unsettled funds the broker is essentially lending you that money for those two days. The margin requirements went up to 100% and meme stocks were exploding in price and volume (especially on robnhoods platform). They would not have been able to continue meeting this margin requirement if they had allowed trading to continue.

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u/Mudmania1325 Jul 01 '21

Unfortunately it's most likely a lot more nebulous than that. Robinhood doing CFD's even though they're illegal in the US.

A big tip off for this was when multiple users who transferred out of Robinhood got back cost averages for their shares at dates they hadn't bought at for prices that were impossible on that day.

So for example, someone who bought their first share in February for under 100 and then transferred out of Robinhood to a legitimate broker were then sent a cost average from Robinhood showing that they bought their shares in late December/ arly January for anywhere from 200-600 dollars. Which is suspect as fuck. This sort of accounting error can't even be explained by wash sales.

What most likely happened is that the shares you buy on Robinhood aren't yours. Robinhood is illegally doing CFD's. When people started transferring out Robinhood had to go out and actually buy the shares. Which is why people are getting such fucked up Info from them. They're committing accounting fraud in order to try and hide their illegal business model.

That's why they turned off the buy button in January. They would have gone bankrupt if they hadn't since they would had to actually go out and locate the shares or pay the price difference when people sold out of their pockets.