Robinhood quickly made waves after launching in 2013 by offering free shares in companies for new customers and gamifying complicated options contracts. In 2020 and 2021, covid restrictions and US government checks to citizens created the perfect climate for the broker, with gambling on stock markets rising in simplicity and popularity. Streamers, TikTokers, and YouTubers went full “not financial advice” on their audiences.
Ever since February of last year, however, it’s become abundantly clear that Robinhood picked the wrong time to go public — and the broker is struggling.
The lifting of covid restrictions meant that fewer people were sitting on their phones at home and gambling this past year. It turns out that this is bad for apps like Robinhood, that want you to gamble on the stock market.
Additionally, Robinhood is now contending with rising interest rates and a US economy constantly flirting with a recession — and we haven’t even gotten to Sam Bankman-Fried’s (SBF) purchase yet.
SBF stakes 7.6% of Robinhood
The more than 55 million shares of Robinhood stock that SBF and Gary Wang purchased in May under a company called Emergent Fidelity Technologies benefitted Robinhood immensely at the time: shares for the company were trading at or near all-time lows when the announcement was made and soared almost 30% by market open the next day.
But trouble wasn’t over for the newly public company. Robinhood was fined $30 million by the New York State Department of Financial Services (NYDFS) for significant violations of anti-money laundering (AML) practices. The firm ended up laying off a large portion of its staff over the course of 2022.
By June, Robinhood stock price was below $7.
Are Robinhood’s troubles in the rear-view mirror?
In January, the Department of Justice finally made the decision to seize SBF’s Robinhood shares after criminally charging the FTX founder with a multitude of financial crimes. What will happen with the shares is unknown.
Meanwhile, Robinhood has been trying to tamp down investor fears about the half a billion dollars worth of stock that could hit the markets if the Department of Justice (DoJ) or FTX and Alameda liquidators manage to claim the rights to the shares.
After a disappointing Q4 of 2022 the board has agreed to a hypothetical re-purchase of the SBF-tainted shares, but there’s one snag: they have no idea if the DoJ or liquidators will agree to the offer.
For what its worth, Sam’s choice to go long on Robinhood in May could well be his only good trading decision. The company hasn’t really lost much value since the purchase and the shares are actually liquid, unlike the hundreds of cryptocurrencies and other venture investments in his portfolio.