In re Robinhood Outage Litigation

AMENDED COMPLAINT [Consolidated Class Action Complaint] against Robinhood Financial, LLC, Robinhood Markets, Inc., Robinhood Securities, LLC. Filed by Jared Ward, Joseph Gwaltney, Jason Steinberg, Daniel Beckman, Michael Riggs, Colin Prendergast, Jared Leith, Kevin Russell, Omeed Mahrouyan, Mahdi Heidari Moghadam, Leila Kuri, Mengni Xia, Emma Jones, Raghu Rao, David Kostenko, Howard Morey.

Northern District of California, cand-3:2020-cv-01626

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8 1 KAPLAN FOX & KILSHEIMER LLP Matthew B. George (SBN 239322) 2 Maia C. Kats (pro hac vice) Laurence D. King (SBN 206423) 3 Mario M. Choi (SBN 243409) 1999 Harrison Street, Suite 1560 4 Oakland, CA 94612 Telephone: 415-772-4700 5 Facsimile: 415-772-4707 mgeorge@kaplanfox.com 6 mkats@kaplanfox.com lking@kaplanfox.com 7 mchoi@kaplanfox.com 8 COTCHETT, PITRE & MCCARTHY, LLP Anne Marie Murphy (SBN 202540) 9 Mark C. Molumphy (SBN 168009) Leslie Hakala (SBN 199414) 10 Noorjahan Rahman (SBN 330572) Tyson C. Redenbarger (SBN 294424) 11 Julia Q. Peng (SBN 318396) San Francisco Airport Office Center 12 840 Malcolm Road, Suite 200 Burlingame, CA 94010 13 Telephone: (650) 697-6000 Facsimile: (650) 697-0577 14 amurphy@cpmlegal.com mmolumphy@cpmlegal.com 15 lhakala@cpmlegal.com nrahman@cpmlegal.com 16 tredenbarger@cpmlegal.com jpeng@cpmlegal.com 17 [Additional Counsel Appear on Signature Page] 18 19 UNITED STATES DISTRICT COURT 20 NORTHERN DISTRICT OF CALIFORNIA 21 22 Case No. 3:20-cv-01626-JD 23 In re: Robinhood Outage Litigation CONSOLIDATED CLASS ACTION 24 COMPLAINT 25 DEMAND FOR JURY TRIAL 26 27 28 Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 INTRODUCTION 2 1. Plaintiffs bring this putative class action against Defendants Robinhood Financial, 3 LLC ("Robinhood Financial"), Robinhood Securities, LLC ("Robinhood Securities"), and 4 Robinhood Markets, Inc. ("Robinhood Markets") (collectively, "Robinhood"), demanding a trial 5 by jury. Plaintiffs make the following allegations pursuant to the investigation of counsel and based 6 upon information and belief, except as to the allegations specifically pertaining to each individual 7 Plaintiff, which are based on personal knowledge. 8 2. Robinhood is an online brokerage firm founded in 2013 that states it is "a pioneer 9 in commission-free investing." Robinhood's customers can place securities trades through the 10 firm's website and by using a web-based application (or "app"). Robinhood permits customers, 11 when its trading platform is operational, to purchase and sell certain securities, including option 12 contracts, and engage in trading on margin. The company has no storefront offices and operates 13 entirely online. Robinhood is a FINRA1 regulated broker-dealer 14 3. Unfortunately for Robinhood's customers, including Plaintiffs and the putative class 15 (the "Class"), Robinhood's trading systems have repeatedly crashed—preventing Plaintiffs and the 16 Class from accessing their accounts and making any trades through the firm's website or app. The 17 most significant crash occurred on Monday, March 2, 2020, and extended through mid-day 18 Tuesday, March 3, 2020. The March 2-3 outage crashed all of Robinhood's operating systems for 19 more than a full trading day. 20 4. Several days later, on March 9, 2020, Robinhood again experienced another 21 complete system outage. Plaintiffs and Class members again experienced significant outages on 22 March 13, 16, and June 18, 2020. In total, the Robinhood website and app have gone down 47 23 times since March.2 The service outages are individually referred to as an "Outage" and 24 1 Financial Industry Regulatory Authority, Inc. (FINRA) is a private corporation that acts as a a non-governmental, self-regulatory organization that regulates member brokerage firms and 25 exchange markets. 2 26 Nathaniel Popper, Robinhood Has Lured Young Traders, Sometimes With Devastating Results, The New York Times (July 8, 2020) 27 https://www.nytimes.com/2020/07/08/technology/robinhood-risky- trading.html?searchResultPosition=2 (last visited Aug.19, 2020). 28 -1- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 collectively as the "Outages".3 2 5. During the Outages, Robinhood's customers were completely unable to use the 3 services, including to buy or sell securities or to exercise option contracts through Robinhood's 4 website and app. Robinhood's help center, which should provide email and phone support, was 5 also unavailable during the Outages and customers were unable to obtain any information or 6 meaningful assistance from Robinhood. During the Outages, Class members repeatedly attempted 7 to contact the help center, by phone and email, to no avail. Robinhood has admitted that during the 8 Outages the help center was unavailable and that Robinhood's phone support was non-existent. 9 Customers were thus left with no recourse during the Outages, unable to access their funds or 10 exercise time-sensitive trades. They were forced to sit helplessly until services were re-established. 11 6. The Outages on March 2 and 3, 2020, were particularly devastating for Plaintiffs 12 and the Class as the Dow Jones Industrial Average rose 5.1% during that time.4 Meanwhile, 13 Robinhood users were locked out of their accounts and unable to access their funds or make 14 trades—while the markets gained a record $1.1 trillion. The Outage on March 9, 2020, was 15 similarly harmful, as the Dow Jones Industrial Average had its largest point plunge in history up to 16 that date.5 Again, Plaintiffs and the Class were unable to access their funds or make trades and 17 suffered significant losses as a result. Trades that were placed before the Outages, for which 18 Plaintiffs and the Class received trade confirmations, also failed, or were processed at incorrect 19 times or incorrect prices during the Outages. Additionally, Plaintiffs and the Class members were, 20 at times during the Outages, able to seemingly place trades, and again the Plaintiffs and class 21 received trade confirmations; however, it was later learned that those trades also failed, or were 22 3 23 Plaintiffs and the Class seek damages related to the Outages on March 2, 3, and 9, 2020. 4 Fred Imbert and Eustance Huang, Dow roars back from coronavirus sell-off with biggest gain 24 since 2009, surges 5.1%, CNBC (March 2, 2020) https://www.cnbc.com/2020/03/01/awaiting- us-stock-futures-open-at-6-pm-after-wall-streets-worst-week-since-2008.htm (last visited Aug. 25 19, 2020). 5 26 Kimberly Amadeo, How Does the 2020 Stock Market Crash Compare With Others? The Balance (April 27, 2020) https://www.thebalance.com/fundamentals-of-the-2020-market-crash- 27 4799950#:~:text=The%20stock%20market%20crash%20of,point%20drops%20in%20U.S.%20hi story (last visited Aug. 19, 2020). 28 -2- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 processed at incorrect times or incorrect prices during or after the Outages. 2 7. Such failures constitute negligence, breaches of contract and fiduciary duties, and 3 are violations of FINRA regulations. Per FINRA regulations, Robinhood has a duty to process 4 trades timely and at the best prices for its users. Robinhood is also required to have a business 5 continuity plan identifying a procedure relating to an emergency or significant business disruption. 6 During the Outages, Robinhood failed to process trades in a timely manner or at all, and it was 7 discovered that Robinhood's continuity plan was nonexistent. Robinhood simply abandoned its 8 customers. 9 8. The loss of access to Robinhood's trading platform and absence of contingency 10 plans and customer service support caused concrete, particularized, and actual damages for 11 Robinhood customers. Plaintiffs and members of the class were unable to monitor their accounts, 12 make trades, or exercise their option contracts to capitalize on gains or to mitigate losses. Many 13 Plaintiffs and Class members held options contracts that expired, worthless, during the Outages. 14 And some of those contracts, such as the contracts held by certain Plaintiffs herein, were exercised 15 by Robinhood during the Outages, without express authorization or approval of its customers, at a 16 loss. Other Plaintiffs and Class members were subjected to forced margin calls as a result of the 17 Outages, which they otherwise would have been able to avoid if they had access to their accounts. 18 9. Robinhood accepts fault for the Outages, which it attributes to stress on its systems. 19 According to Robinhood employees, the March 2020 "outage was rooted in issues with the 20 company's phone app and servers. They said the start-up had underinvested in technology and 21 moved too quickly rather than carefully."6 These flaws were known and insufficiently addressed: 22 "[s]oftware mishaps have rocked Robinhood before," including in 2018, for example, when 23 its "options trading service had an outage that locked consumers out of their accounts and stopped 24 25 26 6 Nathaniel Popper, Robinhood Has Lured Young Traders, Sometimes With Devastating Results, 27 The New York Times (July 8, 2020) https://www.nytimes.com/2020/07/08/technology/robinhood-risky- 28 trading.html?searchResultPosition=2 (last visited Aug.19, 2020). -3- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 them from closing positions[.]"7 2 10. In offering trading services, Robinhood assumed a duty to ensure that its systems 3 were sufficiently equipped to reliably deliver such services under reasonably foreseeable customer 4 demands and market conditions, such as those at issue in this case. Robinhood acted negligently 5 by failing to adequately or properly equip itself technologically and systemically to maintain 6 Plaintiff and Class members' access to trading services. Due solely to its own negligence and failure 7 to maintain adequate infrastructure, Robinhood breached obligations owed to Plaintiff and Class 8 members and caused them substantial losses. Its failures are all the more serious due to 9 Robinhood's history of such failures, the magnitude of the Outages, the absence of alternative 10 means for customers to protect their positions and investments, and lack of communication and 11 customer support. 12 11. Plaintiffs bring this class action on behalf of Robinhood customers who were denied 13 access to their Robinhood trading accounts during the Outages and for the many, including 14 themselves, who suffered losses as a result of the Outages. Plaintiffs assert putative class action 15 claims generally including negligence, breach of contract, breach of fiduciary duty, and violations 16 of California's Unfair Competition Law, on behalf of themselves and all other Robinhood 17 customers who are similarly situated. Plaintiffs seek damages, restitution, disgorgement and 18 declaratory relief. 19 PARTIES 20 12. Plaintiff Daniel Beckman ("Plaintiff Beckman") is a citizen of Florida and is over 21 the age of 18. 22 13. Plaintiff Joseph Gwaltney ("Plaintiff Gwaltney") is a citizen of Florida and is over 23 the age of 18. 24 14. Plaintiff Emma Jones ("Plaintiff Jones") is a citizen of Texas and is over the age 25 7 26 John Gittlelsohn, Annie Massa, and Jennifer Surane, Robinhood Maxed Out a Credit Line Last Month as Markets Fell, Bloomberg (March 10, 2020) 27 https://www.bloomberg.com/news/articles/2020-03-10/robinhood-maxed-out-credit-line-last- month-amid-market-tumult (last visited Aug. 19, 2020). 28 -4- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 of 18. 2 15. Plaintiff David Kostenko ("Plaintiff Kostenko") is a citizen of Washington and is 3 over the age of 18. 4 16. Plaintiff Leila Kuri ("Plaintiff Kuri") is a citizen of North Carolina and is over the 5 age of 18. 6 17. Plaintiff Jared Leith ("Plaintiff Leith") is a citizen of Minnesota and is over the age 7 of 18. 8 18. Plaintiff Omeed Mahrouyan ("Plaintiff Mahrouyan") is a citizen of California and 9 is over the age of 18. 10 19. Plaintiff Mahdi Heidari Moghadam ("Plaintiff Moghadam") is a citizen of Texas 11 and is over the age of 18. 12 20. Plaintiff Howard Morey ("Plaintiff Morey") is a citizen of Oklahoma and is over the 13 age of 18. 14 21. Plaintiff Colin Prendergast ("Plaintiff Prendergast") is a citizen of California and is 15 over the age of 18. 16 22. Plaintiff Raghu Rao ("Plaintiff Rao") is a citizen of New Jersey and is over the age 17 of 18. 18 23. Plaintiff Michael Riggs ("Plaintif