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 gon na, be a good defense for robin hood, it's pointing to the other brokers. It wasn't just robin hood why robinhood's gon na 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 gon na, 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 gon na totally be a bully here.

Okay and we're gon na we're gon na tear into robin hood, where they're wrong, i'm just gon na, 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 gon na, be a big out for robin hood, but anyway, robin hood here says: okay, that's it we're gon na 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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