Crypto-forward brokerage Robinhood’s initial public offering (IPO) opened trade at $38 per share last July. Today, its stock is worth only $13 — having collapsed more than 60% since its debut.
According to a new lawsuit brought by investor Robert Zito, Robinhood allegedly released “false and misleading” IPO documents, reports Law360.
Plaintiff Zito alleges Robinhood padded its numbers with temporary crypto-related transaction volume.
Robinhood’s brief spike in cryptocurrency trading volume, he claims, obscured a downturn in overall revenue. The company previously disclosed that Dogecoin made up 62% of its overall revenue in last year’s second quarter.
The Menlo Park-headquartered unit raised $2 billion in its IPO. Co-founders Vlad Tenev and Baiju Bhatt picked up $50 million each from selling stock personally.
Investment banks Goldman Sachs and JPMorgan Chase led the IPO and collected generous fees.
But things went south from there. Robinhood fetched a $32-billion valuation on its first day of trade, now it’s worth less than $12 billion.
Indeed, common shareholders — despite Robinhood’s namesake — surrendered their money to Wall Street insiders yet again.
Zito is reportedly seeking damages from Robinhood execs, as well as a court order demanding the firm rectify its corporate governance and other internal procedures, noted Law360.
Robinhood collateral damage in meme trader mania
Although Robinhood reported a profitable fiscal 2020, the company lost $1.4 billion in the first quarter of 2021 alone.
Last year’s first quarter was noteworthy: it was when Reddit posters caused mayhem by squeezing meme stocks for thousands of percentage points.
At their zeniths, Robinhood forced trading freezes on GameStop (GME) and AMC stock across its trading app.
- These trading suspensions sparked considerable controversy, including accusations that Robinhood was protecting institutional traders at the expense of retail investors.
- Investors sued the company, alleging that Robinhood deprived them of profits by “purposefully, wilfully, and knowingly” removing GME stock from its platform.
- Despite 309% higher revenue in Q1 2021 versus the same quarter in 2020, Robinhood’s poor reaction to the Reddit short squeezes has eliminated profitability altogether.
Read more: [Robinhood won’t follow Coinbase and buy crypto with company cash — yet]
Robinhood is currently beta testing crypto wallets for its users, which finally allows them to withdraw digital assets from its trading platform.
The digital asset community has reiterated concerns that users would not have any control over their crypto if Robinhood again freezes its platform.
In any case, while Zito’s lawsuit plays out, a number of other legal firms are circling for spurned Robinhood users — hoping to get a cut of a potential class action win.
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