Robinhood Lawsuit – Robinhood Shut Down for 2 Days And Is Getting Sued

Robinhood Lawsuit – Robinhood Shut Down for 2 Days And Is Getting Sued

Robinhood Lawsuit

Robinhood was down for 2 days. The first day the platform was unavailable was the biggest day for stocks in 12 years. The Dow gained 4.6%, but millions of Robinhood users could only watch and missed out on the biggest rally since the financial crisis.

In this article, we will talk about the facts of the Robinhood outage and what YOU can do if you were one of the Robinhood users that experienced losses or missed out on gains.

Before we dive into the Robinhood lawsuit and the outage, let’s first talk about…

What is Robinhood?

Robinhood was founded in April 2013 with a bold promise: Commission-free trading. 

At that time, Schwab, TD Ameritrade and other big brokerage firms were still charging $6.95 per trade, so approx. $14 to buy and sell a stock. 

Not only did Robinhood offer ZERO commissions, but they also have a genius marketing campaign:

Robinhood uses a viral marketing campaign: “Invite Friends, Get Free Stock”

As Robinhood says: “For every new friend you invite to join Robinhood, you can both earn a free stock” and they display the logos of Berkshire Hathaway, GE, Mircosoft, and others.

Robinhood Referral Program
Robinhood Free Shares

This attracts a bunch of young traders with no money because there are no account minimums! 

So you can open an account with as little as $1, and then start inviting friends. And as Robinhood says: “If enough of your friends sign up, you can earn up to $500 per calendar year in free stocks!”

Robinhood says that “The value of the share may be anywhere between $2.50 and $200!” – and many users hoped to get a stock worth $200!

But here’s the disclaimer:

Robinhood Free Shares Disclaimer


After some basic math, we can quickly see that you only make $2.50 – $10 per referral, so if you want to make “up to $500 per year” you would have to refer 50 – 250 friends!

And that’s why many Robinhood users spammed forums, Facebook, Instagram and Twitter with their “referral links.”

How Robinhood Makes Money

Other brokers charge $5 – $10 in commissions, and Robinhoood doesn’t charge anything.

In addition, they are handing out shares for you and your friend if you sign up with them. 

So how do they make money?

According to their website, they make money in 3 ways:

How Robinhood Makes Money

Let’s dissect this:

Robinhood Gold

Robinhood offers a premium service called Robinhood Gold starting at $5 per month.

As of December 2019, Robinhood had 10 Million Users:

Robinhood Account Estimate
Source: (

Let’s say that only 5% of them are using “Robinhood Gold”- that would be 500,000 users.

Each of them is paying $5 per month, so that’s $2.5MM per month or $30,000,000 per year.

Not bad, but probably not enough to pay their 900 employees (according to

Rebates from Market Makers And Trading Venues

Here’s where it gets shady: 

In 2018, Bloomberg reported that “Robinhood makes nearly half of its revenue (more than 40%) from high-frequency trading and payment for order flow” (see

Wait… what does THAT mean?

It means that Robinhood doesn’t send your orders to an exchange!

Instead, they have market makers matching your orders behind the scenes!

This means that you are not trading against other traders – you are trading against Market Makers!

And what do you think:
Who’s winning THIS game? – You guessed right: The Market Makers!

They make so much money, that they pay Robinhood to execute the trades through them instead of an exchange! So you might not get the best price for your orders.

In fact, FINRA fined Robinhood $1.25M in December 2019 for failing to ensure that its customers received the best price for orders.

Anyhow… so Robinhood gets a piece of the action. 

How much?

According to one of their owners, “very little.” In a statement, he said it’s only 2.6 cents per $100 traded. 

So if a customer buys 100 shares of Apple for $200 each – a $20,000 purchase – Robinhood could get up to $5.20.

Still doesn’t sound like much, does it?

But according to some estimates, Robinhood makes $69 Million per year from these rebates (see

Now let’s take a look at the 3rd source of income:

Income Generated From Cash

If you have money in your Robinhood account and you don’t have it invested in stocks, Robinhood can invest this money.

So let’s do some math:

Unfortunately, Robinhood does not disclose information on its “total assets under management”. So we don’t know how much money customers have in their accounts, but some estimate the average account size of a Robinhood user to be $2,000 (see

And with 10 MM users, that would be $20 Billion in assets.

Not all of this will be invested in stocks. Realistically, probably only 50% is invested in stocks, the rest is just sitting in accounts. So Robinhood has probably $10 Billion available to invest. 

And right now, American Express is offering savings accounts with 1.7%.

Let’s say Robinhood gets only 1.5% on the unused cash.

Based on $10 Billion, that would be $150MM per year!

Let’s tally up:

  • Income from Robinhood Gold: $30MM
  • Rebates from market makers: $69MM
  • Income generated from cash: $150MM

That’s almost $250MM per year!

Keep in mind, these are only estimates. There’s no exact information because Robinhood is a private company.

But I think theses estimates are pretty good.

Now that we know how Robinhood makes money, let’s look into the Robinhood lawsuit.

Robinhood Shut Down For 2 Days

On Monday, March 2nd, the Dow had it’s biggest day since the Financial Crisis in 2008. The Dow gained 4.6%, or 1,265 points – and Robinhood was down. Users couldn’t buy or sell stocks.

On Tuesday, March 3rd, when the Federal Reserve announced an “emergency interest rate cut”, the Dow plummeted almost 1,000 points – and Robinhood was down again!

For 2 days straight, when the Dow moved more than 1,000 points per day, Robinhood users were stuck and could only watch.

They missed out on profits, and they also couldn’t sell any losing positions! 

Needless to say that millions of Robinhood users are p*ssed!

It was only a matter of days before somebody filed a class-action lawsuit.

The Robinhood Lawsuit

Michael Taaffe, an attorney in Tampa, filed a class-action lawsuit on Wednesday, March 4th – the day after the (Robinhood) outages occurred. 

Robinhood Lawsuit

The attorney claims that there are at least $5MM in losses across all users, and he is seeking “compensatory and punitive damages.”

Will he succeed?

Well, on the one hand, every Robinhood user agreed to a 44-page user agreement, in which Robinhood says it cannot guarantee that its “channels will be available and error-free every minute of the day.” 

Further, the agreement says, that Robinhood cannot be held liable for interruptions due to failures “beyond its control.”

However, the founders of Robinhood stated on their website that “the cause of the outage was stress on our infrastructure.” 

Robinhood Outage

But based on this, the lawyer argues that Robinbhood admitted: “platform outages were due to its own failures.”

The lawsuit further alleges that Robinhood was negligent and breached its contract by failing to “provide a functioning platform.”

I’m not a lawyer, but I agree:

When a platform goes down because of “stress on the infrastructure”, this is NOT beyond the company’s control. If their data center was wiped out by a massive hurricane or a meteor crashing into it, THAT would be out of their control.

But “stress on the infrastructure”? – Come on!

If You Are Affected By The Robinodd Outage, What Should You Do?

Right now, Robinhood is offering its gold clients three free months of service — a $15 value.

First of all, I think that’s a slap in the face. 

One user, 35-year-old Brad Finson, reported his “account balance fell by $52,000” Do you really think that he wants another 3 months on this platform?

Especially, since the owners state: “As our engineering team works to upgrade our infrastructure, we may experience additional brief outages.”

Wait, what? More outages???

I’m not a lawyer, so I can not give you legal advice. 

But if I was affected, here’s what I would do:

  1. I would NOT take anything from Robinhood, because based on my knowledge, if you take anything from them, e.g. their $15 offer, you might no be able to participate in the class-action lawsuit.
  2. I would watch the news very carefully and see who is filing lawsuits, and what I need to do to be part of it.
  3. I would move my money out of Robinhood as quickly as possible!!!

If you have been following me for a while, you know that I have always been warning people about Robinhood.

I hate it when I’m right!

Hope this helps 🙂

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