Robinhood Markets Inc. has decided to settle in principle a proposed class action filed by customers in the United States.
The customers claimed that the investment app's outages in March 2020 shut them out of taking advantage of the pandemic-related volatility in trading, as per Reuters.
Robinhood Would Seek Court Approval of a Settlement
On Thursday, Robindhood filed a notice of the pending deal with a San Francisco federal court. The pending deal said that the company was trying to resolve details of the agreement and would seek court approval of a settlement within 60 days.
It was not revealed how much Robinhood would pay to settle the action, which sought damages for a class of all U.S. users who held stock or options during a service outage on March 2, 2020, according to Reuters.
The lawsuit alleged that some users lost money because of the Robinhood outages on March 2, 3, and 9, 2020.
Robinhood did not respond when asked for a comment on Friday.
On Friday afternoon, Robinhood shares were trading at around $10.38, but it was up around 11.9% from Thursday's close.
Menlo Park, a California-based company that advertised itself as democratizing finance, rode a surge of interest in stock trading from retail investors during the pandemic. However, it has faced legal challenges from users claiming the app did not live up to its promises.
Robinhood outages caused users to lose money when they could not trade, as alleged by the lawsuit in San Francisco. Users accused the company of negligence and breach of contract, which violated California's fair business laws and other claims.
Other users also filed a lawsuit after Robinhood temporarily restricted trading in January 2021 during a rally in Gamestop Corp (GME.N), AMC Entertainment (AMC.N), and other so-called "meme stocks."
Saying such restrictions were allowed under Robinhood's customer agreement, the proposed class action in January was dismissed by a judge.
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Robinhood Initially Tried to Settle the Outage in 2020 to Avoid Lawsuit
In March 2020, Robinhood offered a credit to a group of clients and apologized for its multiple-day outage. However, in exchange for the voucher, the company requested that users sign a document agreeing not to take legal action. This is according to Robinhood emails seen by CNBC.
The users impacted by the outage have two choices: take the amount Robinhood offers now and forego other compensation down the road. Or take legal action.
In an email to users, Robinhood made its first public apology related to the outages in March 2020. According to the company, they had improved their infrastructure and some of the core issues that caused the March 2020 downtime.
The company said in an email to some users: "We'd like to start with the apology you deserve. We're sorry for the recent outage on our platform. Your support is what helps us democratize finance for all, and we know we owe it to you to do better."
The company further said that an apology alone wouldn't rebuild the users' trust in them, but they hope their actions will.
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