Security & Fraud

Bug In Robinhood App Allows Borrowing Of Excess Funds

Robinhood Markets is reportedly experiencing a glitch that enables users to trade stocks with (essentially) free money.

Launched in 2013, California-based Robinhood offers commission-free trading. Bloomberg reported that this current glitch — called the “infinite money cheat code” by users of Reddit’s WallStreetBets forum —allows users to trade with excess borrowed funds. In fact, one trader claims they achieved a $1 million position that was funded by a $4,000 deposit. And another user turned his $2,000 deposit into $50,000, which he then used to acquire Apple puts.

Robinhood is “aware of the isolated situations and communicating directly with customers,” spokesperson Lavinia Chirico said in an email.

In the meantime, the traders that have used this method could be held liable for the money and guilty of securities fraud, said Donald Langevoort, a law professor at Georgetown University.

“If there’s an element of deceit, that you got this by exploiting a loophole in a system, I can see how that could become a securities fraud case,” he explained. “The other possibility is just the basic common law of restitution. If you take advantage of someone’s mistake to line your own pockets, you need to pay them back.”

This is the latest issue for the popular stock trading app. In July, the company admitted that some passwords were mistakenly stored in a readable format and recommended that users change their passwords. Robinhood didn’t say how many people were impacted by the mistake.

And just last month, Robinhood relaunched a checking feature called Cash Management after it was previously shelved due to regulatory issues. The feature will enable customers to earn 2.05 percent APY on any money in the account — and they will be able to spend it with a distinctive Mastercard debit card.

“If you have $5,000 in your account while you’re thinking about what to invest in, you’d have an extra $105 at the end of the year,” noted Robinhood Co-CEO Baiju Bhatt.

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