Markets

Robinhood Outage Triggers Lawsuit Threat By Angry Users

stock market trader

After being down for a full day of trading on Monday (March 2), the Robinhood stock trading app restored service on Tuesday and emailed customers an explanation.

“Our team has spent the last two days evaluating and addressing this issue. We worked as quickly as possible to restore service, but it took us a while. Too long. We now understand the cause of the outage was stress on our infrastructure — which struggled with unprecedented load. That, in turn, led to a “thundering herd” effect — triggering a failure of our DNS system,” Robinhood said in the email, which was also posted on its website

Robinhood’s 10 million users were stuck on the sidelines during the biggest market rally since December 2018 and the third-best day since the financial crisis. The S&P 500 gained 4.6 percent, which partially remediated one of the worst weeks in trading. A Twitter account advocating a class action lawsuit — Robinhood Class Action — already has almost 7,000 followers. One user tweeted that they lost nearly a half-million dollars. Another user tweeted that Robinhood wasn’t letting people close their accounts or move their money.

The outage followed the Federal Reserve’s announcement that it was cutting interest rates by half a percentage point due to the economic impact of the coronavirus.

As a broker-dealer, Robinhood is required by the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC) to have a contingency plan in the event of service interruption, CNBC reported.

Robinhood hinted there could be further outages as it upgrades its platform. “As our engineering team works to upgrade our infrastructure, we may experience additional brief outages, but we’re now better positioned to more quickly resolve them.”

A Series E funding round last year led by DST Global put the company’s valuation at $7.6 billion. 

Robinhood was founded in 2013 in Silicon Valley by Vladimir Tenev and Baiju Bhatt. The company’s mobile app and website enables people to invest in stocks, ETFs, and options through Robinhood Financial and crypto trading through Robinhood Crypto. It doesn’t charge any fees and earns revenue from interest earned on customers’ cash balances and margin lending.

Robinhood has not said what backup or contingency plan might have been in place and might have failed, too — or if there was/is a backup plan in the event of systems failures or unanticipated volume surges.

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