Robinhood Markets Inc.`s user agreement will likely protect the brokerage app from a wave of lawsuits filed by clients after blocking a frenzied trade rally at companies like GameStop Corp that was fueled on social media forums. Robinhood users have been at the center of this week`s wild rally in a handful of stocks that have been heavily bypassed by hedge funds and approved by individual investors in online chat rooms, including Reddit`s WallStreetBets. One of them involved a lawsuit against the first online service Prodigy of Stratton Oakmont, the brokerage firm featured in Leonardo DiCaprio`s film “The Wolf of Wall Street.” The court found that Prodigy was responsible for a user`s allegedly defamatory comments because it was a publisher who moderated the content of the service. Elsewhere, the agreement contains a binding arbitration clause. One. This Agreement contains an arbitration clause prior to the Dispute. By signing an arbitration agreement, the parties agree that: Robinhood`s screen includes a registration agreement informing the user that “BY PRESSING OR CLICKING THE `SUBMIT REQUEST` OR `ACCEPT` BUTTON BELOW, I: (1) ACKNOWLEDGE THAT I HAVE CAREFULLY READ THIS IMMEDIATE AGREEMENT AND ALL DISCLOSURES, CONDITIONS AND AGREEMENTS CONTAINED THEREIN.” One of the “embedded disclosures” is the Client Agreement, which contains the above provisions on arbitration and consent to restrict negotiation. Under this disclaimer, Robinhood contains another disclaimer: “By pressing the `Submit Request` button below, I agree to this Application Agreement.” Okay, that`s pretty clear. Robinhood`s customer agreement – which was updated earlier this year – gives them the option, in their sole discretion, not to accept a transaction request from you.
It`s actually a relatively common language for any type of brokerage service you might use – and why services like TD Ameritrade have taken the same step as Robinhood. When assessing the applicability of online terms, such as Robinhood`s customer agreement, courts regularly review the screen design to decide whether users should explicitly agree to the terms or whether they were reasonably informed of them. The Terms of Use on Robinhood`s website state that it “may, at any time, in its sole discretion and without notice, prohibit or restrict my ability to trade securities.” The name of the customer contract is inconsistent. The agreement is referred to as the RHF-RHS Client Account Agreement on the “Submit Application” button screen, but is referred to in the document itself as the Robinhood Financial LLC & Robinhood Securities, LLC Client Agreement. It doesn`t sound difficult, but companies like Unikrn lost for similar reasons. Earlier this year, a number of Wall Street hedge funds closed short positions in drifting retail stocks like GameStop. Enterprising Reddit users on a subreddit called r/WallStreetBets discovered the short position by the required public disclosures, and then teamed up to push hedge funds into underwater positions by buying the share price. It worked, perhaps too well, because companies like Robinhood then stopped trading Gamestop and other stocks. And as a result, a class of consumers filed a lawsuit against Robinhood. But will Robinhood`s terms of service be sufficient to stop a class action lawsuit? It should be noted that the screenshot above shows the screen that users would see if they had created an account today, and the provisions on arbitration and consent to restrict trading appear in the latest version of Robinhood`s terms. While Reddit users fueled the rally, the information platform is isolated from mutual fund claims. Internet platform owners, where much of the discussion took place, are also immune from liability for users` activities under a 25-year-old law known as Section 230.
Social media companies are generally not responsible for users` activities under a law commonly known as Article 230, a 1996 law that aimed to promote new forms of communication at the dawn of the online age. Therefore, it is unclear whether Robinhood will be able to enforce its terms in court. Many courts have refused to apply the terms presented to users on similar screens, and many have applied terms in similar cases. Robinhood must be able to show users what the screen looked like for users who logged in when the complainants signed up. If the screen design hasn`t changed over the years, they`ll have to prove it. They must also indicate the exact versions of the conditions accepted by applicants and whether the same provisions have been included in previous versions. If the provisions in question were not originally included in the Terms, Robinhood will subsequently be required to provide evidence that the applicants have accepted the amended Terms. Users are not required to expressly declare their acceptance of the Terms by clicking on a separate button or checkbox. Instead, they are presented with two similar warnings that warn them that clicking on the “Submit Request” button also indicates the user`s agreement to the request agreement or a number of conditions referenced by a hyperlink. It will be difficult to prove that users suffered from Robinhood`s actions, as GameStop and other stocks falling under the restrictions fell sharply on Thursday after the restrictions were announced, said James Cox, a professor at Duke Law School. If the customer agreement is enforceable, Robinhood should be able to dismiss the lawsuit because users have agreed that Robinhood will restrict trading, including GME actions, or at least the lawsuit should be dismissed and sent to arbitration.
Companies like Robinhood try to shield themselves from liability and/or dictate how disputes against the company are handled in their terms of service. Most companies require users to agree to the terms during the sign-up process or when logging into the app via clickwrap or login wrap contracts. This agreement contains most of the terms you would normally expect in any of these agreements – typical warranties and limitations of liability that limit Robinhood`s liability, as well as terms and exclusions of liability for market volatility. However, we refer to section 16 of the Customer Agreement for the provision that will likely allow Robinhood to freeze the trade: the light gray font color does not contrast well with a white background: the only feature of the screen that really stands out and attracts the user`s attention is the “Submit Request” button. The move of the private platform should not be a surprise given the user contract of the website, which everyone should have read extensively when signing up for the service. In particular, users of the site agreed to the following terms of the December 2020 agreement: The 9-page complaint filed by Brendon Nelson on behalf of a class of consumers alleges that Robinhood intentionally restricted trading in Gamestop shares in order to deprive investors of the opportunity to invest and manipulate the open market. . . .
