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Comment by gamerDude | Hacker News Reader

If the SEC has gone through and has accounted for the 34 million in cost to consumers, why are they not having robinhood reimburse the customers for their lost money on the trades and then charging the additional 30 million on top for lying? Why does the SEC take all the money?

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SEC doesn't work on behalf of consumers, it works on behalf of the federal government. Robinhood customers are still free to bring lawsuits against the company and those would be heard in courts.

The SEC's stated mission is "to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation." I would equate Robinhood consumers with investors.

And plaintiff securities class action law firms are undoubtedly drafting complaints as we type.

The idea is that the SEC doesn't represent investors in court. They aren't suing for actual damages (losses) incurred by the investors. They are assessing Robinhood with a penalty (fine) for violating a regulation.

Moreover, the SEC charges and investigation are likely to have material impact on any such civil cases.

Got it, so, in theory this sets the groundwork for a class action lawsuit?

Robinhood probably has a binding arbitration clause in their contract that prohibits users from joining a class action lawsuit, no?

You can put a clause in your contract that prohibits someone from using specific legal action at your discretion? That sounds wild so I am interested. What is the justification for this? How could anyone basically preemptively and effectively exempt themselves from specific legal action regardless of wrongdoing? What would happen if the other party tried anyway?

Oh, this is extremely common in the boilerplate of almost every single contract and ToS I've read in my adult life (IANAL, just referring to the contracts I've signed or chosen not to sign that I've come across). If you look at something like the contract for your credit card, I guarantee you'll find a clause entitled "Arbitration", "Mediation", or something akin to that where it basically says "If something bad happens, you give up your right to sue us and instead agree to binding arbitration by a mediator of our choice." As for what would happen if one party tried to sue the other anyway, I think it would depend on the nature of the grievance. Again, IAN[even_close_to_being]AL.

These class action waivers began to completely take over after DirectTV vs Imburgia was decided in 2016:

https://www.jonesday.com/en/insights/2016/01/us-supreme-cour...

An increasingly extreme Supreme Court has repeatedly expanded the ability of employers and service providers, including ISPs, to prohibit class actions in their contracts. Even retailers now attempt to compel their customers into forced arbitration.

You can put whatever you want in the contract. That doesn’t mean the court will honor it. That’s why TOS have severability clauses; so that the rest of the contract survives if a judge strikes down a clause as invalid during a lawsuit.

I would guess that since Robinhood has been found guilty of misleading customers it wouldn't be too difficult to say they were negotiating in bad faith.

Note: This is complete arm chair lawyering with no real world knowledge

If you're in the US, you should pay more attention to the contractual agreements you're entering into.

I would find it incredible that you haven't agreed to binding arbitration many times throughout the normal course of your financial and commercial activity.

Yes, and the extent that matters depends how much people care. Uber was nickel and dimed by a billion dollars in arbitration fees (significantly more than an expected class action valuation) -- the binding arbitration clause cuts both ways.

It’s about more than just the cash cost though. In many jurisdictions court cases decisions can create legally binding precedent. Arbitration typically does not, a critical advantage when Uber was very busy trying to make sure courts the world over never decided drivers are employees etc. Arbitration could never really make that distinction binding, risk a court might.

That's a fair point.

Mildly off-topic: What do you think about alternative systems (e.g. UBI) which decouple safety nets from employment? I'm still young and naive, but it seems like we could avoid the whole legal morass of contractor vs hourly employee vs salaried employee who must be paid for extra hours worked vs "real" salaried employee, state constitutional amendments requiring 7/8 supermajorities to overturn, having your health records privy to your employer, having to pay 2x (even accounting for employer contributions) for worse health coverage if you're not employed by _somebody_, and all the other garbage in our current system (forgive the USA-centric view).

I have a lot of opinions on this, too much for a comment really!

At root, legal systems in many western countries only really classify workers as employee/contractor vs self employed etc. The law has not caught up with modern working practices for the new type of gig-economy worker we have. I think a third class that lands halfway between employee and contractor needs to be legally recognized in many places - something that has some benefits and risks from both. Making this new class of worker is an extremely politically loaded decision - do they get holidays? do they get benefits? etc etc and that is really where the difficulties in fixing this start. In most western legal systems this would require some really major legislation to fix well too, and would be attacked by all sides along the way. It's just so hard to put right.

That ... seems like a pointlessly inefficient way to do things.

It's more about deterrent than returning the money.

The amount of money per customer is probably a few dollars at most. It wouldn't be efficient to return that money and would probably be better used for future cases and prevention.

Reading the SEC order it anticipates that Robinhood will be sued by clients (I think this is already happening, which may explain why there is no disgorgment ordered here).

Disappointing since they were already fined by FINRA for Best Ex. this time last year although on further reading this seems to relate to the same time period.

Interesting that Massachusettis also announced an enforcement action against them this week.

I don't know the answer in this specific case, but often in the case of small rewards like this, it's because administering the return of the money would consume a large fraction of it.

Why cant Robinhood cover those costs as well?

Presumably there are laws or regulations that dictate how much they can be fined for given behaviors by the SEC, and those laws and regulations do not cover the distribution of monies to injured parties.

I think this is just a practical consideration. Execution fees are typically less than a few cents per share and are often fractional. It's impractical to offer up dozens of single cent refunds for current and previous customers.

Also, just adding onto my own post, I worked on a trading desk for a large bank. Shortly before I arrived there was an issue with order marking (the details of which aren't as significant and were caused by a genuine mistake). The SEC made us go through every trade the desk had ever handled and identify which orders were marked incorrectly. It was so tedious and painful that the bank wanted to settle and pay a bigger fine if it meant not having to deal with all that nonsense. The SEC were unyielding. The moral of the story is that there is no negotiating with the SEC once they decide they've had enough of you. I'm not sure to what extent RH have institutional customers but institutions have a fiduciary duty to seek best execution. RH are on a real legal ledge here. I wouldn't be surprised if this is just the start of a very challenging era for Robinhood.

practical for whom ?

The sad truth of this is that this is just three letter agencies doing as three letter agencies does. I don't think anyone at the SEC was looking after consumers here. If they were, they would similarly investigate other brokerages with the same practices (which is many).

The SEC doesn't have infinite resources to investigate every possible case like this. As with most prosecutions, they just go after the most obvious/high-profile/egregious cases that have the highest probability of success.

That’s mostly because Congress writes the budget, and the President “spends” what is allocated to the SEC on the SEC (no surprise). So the SEC (and IRS) is/are kneecapped because Congress doesn’t give them enough money (either because they don’t want to, or the President doesn’t ask for enough).

The cynical take is that Congress profits from insider trading, tax evasion, etc. and want to prevent themselves from being investigated. Whether that’s true or not would be hard to prove.

This is a great question, and one that SCOTUS ruled on [1] earlier this year. I had hoped that the decision would result in the people who were wronged getting their money back, but it would seem not.

[1] https://www.scotusblog.com/2020/06/opinion-analysis-justices...

What would be a really good law.

Anytime a company is fined by the SEC it has to post that at the top of their home page similar to how restaurants have t display health scores. Of course it would need to have a plain English requirement.

Bonus points for having web browsers flag such sites as well similar to how they can flag sites for being breached

Kind of done by brokercheck, eg https://brokercheck.finra.org/firm/summary/165998

Most SEC and similar sanctions are well covered in the media and especially financial press, as we see here.

SEC can't provide retribution to customers. That's a job for the courts.

But who would bring the suit to the courts? Just some random law firm starting a class action? We all know how that turns out (in terms of retribution[a]). There has to be a better way.

[a]: Because class actions technically aren’t about retribution, but discouragement

Courts don't do much good here either. Realistically, the US does not have a way to hold powerful entities to account for every day americans.

More like - you are free to get into arbitration as you agreed to in their TOS.

Very chill and very non-plutocratic.

Nobody forced you to sign up with them.

I haven't. But there are obvious power dynamics when large market actors can get people to waive their right to sue. There's a reason they're called "inalienable." They're not supposed to be self-alienable either.

One of many good reasons to worry about the composition of the SCOTUS - important cases effecting this very right are headed there, and this is the most "business-friendly" (as the euphemism goes) court in quite some time.

Too bad it is probably too late on these issues; we're approaching a situation where an increasing amount of "little people" law will be handled in arbitration.

Justice in the US has always provided the best justice money can buy. They're just starting to implement a sort of buyers-club.

I don't think you'll get anything more business friendly than "Kelo v. City of New London" and that was driven by the left.

This is far more minor by comparison and protects the rights of people to enter into contracts, even those they don't like.

Arbitration affects almost most consumers and workers these days. Eminent domain is rare in comparison.

> Justice in the US has always provided the best justice money can buy.

Alas, no. If this were really about money only, you could design a much better system. This ain't the best money can buy. (Perhaps look at some actual business-friendly jurisdictions for examples.)

It's a whole hodge-podge of incentives.

I don't think the right to sue is inalienable.

Without the ability to sue for a breach, there is no reason to have a contract in the first place. The terms might as well say "each party can do whatever they want at any time."

You know that Robinhood users declare themselves investors, right?

Sorry, and the relevance at hand is?

In Europe, no one can be an investor without signing papers accepting these risks. i see it's different in the US

> there are obvious power dynamics when large market actors can get people to waive their right to sue.

When this was all going down, RobinHood was a plucky startup being praised all around the valley, not a 'large market actor'.

> There's a reason they're called "inalienable." They're not supposed to be self-alienable either.

Not sure which founding father suggested the inalienable right to tort, but apparently he was overruled since it didn't make it's way into any founding documents.

I believe they could still be sued for these damages

What's perhaps a bit weirder is that the SEC is allowed to settle, instead of having to go through the judicial system.

Why is that weird? Attorneys in this are working on behalf of the US Government. If they feel like settling gets the best deal for the government, then they do that.

It can give the feel of extortion. Settle or else. There is quite a window where settling -- even when provably innocent -- is easier/cheaper than facing an agitated prosecutor.

Settling has nothing to do with a finding of truth.

Do you have any evidence to base this on? Robinhood could easily afford to go to court if they felt the evidence was on their side. $65 million is probably more than what they've ever made in profits, so if they can pay it off without blinking, chances are a court case would result in an even larger fine.

On the same token, it's doubtful that the SEC would proceed to charge Robinhood if they knew they couldn't make the case stick in court.

The SEC threatens to sue for a much larger fine, so they can offer to settle for $65 million.

Going before a proper judge would ensure proper procedures are followed and proper precedent is set.

What they do reminds me way too much of https://digitalcommons.law.yale.edu/fss_papers/543/

It would be (at best) pennies per client. Also, the SEC needs the funding for future investigations.

Possibly because Robinhood doesn’t have the money. It’s gone.

this is a fine. SEC takes it because it has to. SEC is a regulator and fines are a way to regulate.

It would be nice if they hadn't gutted the Consumer Financial Protection Bureau and if they had the power to require them to reimburse customers.

There absolutely should be a department whose job isn't corporate financial games, but focused on the cost to the consumer and can require restitution for the consumer.

They don't actually care about the little people. It's more about keeping the company in check so it doesn't become a monopoly for retail thumb traders faster than the next closest competitors in that category can catch up (which would be Webull I guess?). It's also a reminder that, hey, there's a shitton of (old) money in this field, better not get cocky.

Possibly too cynical of a take, but I'll reiterate the SEC doesn't care about the people browsing WSB.

The SEC has regulatory capture issues. Way too close of ties with the people it is supposed to be regulating.

Take the example of this SEC investigator [0] whose boss got a call from one of those Wall Street hedge funds under investigation and suddenly he's fired! Mysteriously, that boss gets a job with the same firm a few months later. Oh, the kicker? The person who made that call from the hedge fund? Appointed to be the SEC chair in 2013 (she rejoined the hedge fund's counsel at the end of Obama's term in 2016).

[0]: https://en.wikipedia.org/wiki/Gary_J._Aguirre

e: for those downvoting, I'd love to hear your thoughts - I think it is an interesting issue.

There really need to be rules about this kind of crap. It's nasty business.

There are already lots and lots of rules.

They're not really teethed though. I grew up in DC and new plenty of parents who were ex-chief of staffs or whatever and they literally would tell me that they were working for a lobbying firm as a "consultant" because that was a loophole for getting around the "can't join a lobbying firm rules."

Nah, you just shut out good people who want to do good things but can't figure out rules or feel like the burden to doing good things or the potential penalty on technicality or slipup isn't worth it, and select for sociopaths who are adept at figuring out how to use rules (especially draconian ones) to their own advantage, spirit of the rule notwithstanding, because they WILL put up with the burden and the risk.

> you just shut out good people who want to do good things but can't figure out rules

It's not really that complicated to not work for a lobbying firm for 2 years after leaving a chief of staff position for a Senator.

Nor do I particularly want people too dull to figure out those rules to be making laws for our entire country?

> Nor do I particularly want people too dull to figure out those rules to be making laws for our entire country?

You make it sound like there's only like 3 or 4 rules to follow.

> not work for a lobbying firm

it's not really clear ultimately how you're going to enforce that. Laws against lobbying are already treading close to violations of the freedom of speech and right to petition the government; if there are structural problems with how laws are getting enacted, I would suggest thinking about the structural problems in how we are governed more than trying to patch over the system with rules.

> I would suggest thinking about the structural problems in how we are governed more than trying to patch over the system with rules.

I agree with that, I disagree with the idea that lobbying regulations somehow select for unscrupulous individuals - nor was your argument for that idea particularly well-reasoned.

This is par for the course in most government agencies that regulate private business. The SEC gets tons of press and scrutiny (and it happens anyway!) but there are innumerable government agencies with similar issues. You can also downvote me, but anyone who has worked deeply with the government from the private sector is full of WTF stories.

It is common, but I would not go so far as to say "par for the course". Nor does the SEC get "tons of press and scrutiny" - indeed, you can see all of the positive op-eds written in places like the NYT and WaPo about Mary Jo White's appointment (with a few notable dissenters in Salon like Matt Taibi).

In the EPA, for instance, this was Obama's appointee: https://en.wikipedia.org/wiki/Gina_McCarthy. No significant industry ties. Here's another one of Obama's picks for FDA: https://en.wikipedia.org/wiki/Margaret_Hamburg . Again, no significant industry ties.

I did downvote you because you said I could, but this is absolutely true. But, it kind of should be true. Government employees need to strongly know the industry they’re regulating to regulate effectively. I can’t imagine someone with zero financial ties and only knowledge from school going to direct how the SEC does investigations any more than I can imagine the same happening at the FDA.

I don’t think there should be so much regulatory capture (there is), but I do think a revolving door of sorts for many positions is helpful from a perspective of knowing the regulated industry and acting with the best knowledge of regulating that industry.

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