This settlement is coming after two years of litigation and extensive negotiations.
Financial service provider Robinhood Markets Inc (NASDAQ: HOOD) has received approval from a United States federal judge for its $9 million settlement in a class action lawsuit. In a motion that was filed on July 17, Robinhood was accused of sending unsolicited text messages to thousands of Washington residents as part of a “refer-a-friend” program.
Robinhood Lawsuit Hinges on Consumer Protection Violation
The plaintiffs in the class action are Cooper Moore and Andrew Gillette. Both entities stated that by sending promotional text messages without the recipient’s consent, the crypto and stock brokerage platform’s referral program violated the Washington Commercial Electronic Mail Act and the Washington Consumer Protection Act.
Judge Barbara Rothstein of the US District Court for the Western District of Washington agreed with the plaintiff’s motion that Robinhood’s action violated the state’s consumer protection laws. She also claimed that the terms of the settlement were “reasonable and adequate in light of the complexity, expense, and duration of the litigation.”
It is worth noting that this settlement is coming after two years of litigation and extensive negotiations. Approximately 827,327 consumers allegedly received the text messages on a Washington area code telephone number. All these people, except those who consented to receiving the text messages, were included in the class action.
So far, the notice plan that was approved by the court has reached 96% of the identified settlement class members, and over 51,000 claims have been submitted.
Based on the number of validated claims, each participant is likely to receive between $111 and $170. Moore and Gillette are to receive $10,000 each in service payments for the role they played in the case. While their counsel is asking for $2,250,000 in attorneys’ fees and $142,400 in litigation expenses. All these fees sum up to the $9 million settlement.
Robinhood Faces Regulatory Hurdles
For context, Robinhood’s referral program is designed to allow existing users to invite their contacts to join the program. They achieve this by sending referral text messages to each of them. There is usually a referral link attached which the recipients could click to sign up. Once this is done, both the referrer and the new user will receive a reward in the form of free stock.
This was Robinhood’s strategy to expand its user base and improve engagement with the platform. Unfortunately, this did not settle well with Moore and Gillette, thereby, leading to the settlement request. This settlement comes only a few months after Robinhood received a Well Notice from the US Securities and Exchange Commission (SEC) over its digital asset services.
Precisely, the securities regulator noted that Robinhood violated federal securities laws. These include those outlined in Sections 15(a) and 17A of the Securities Exchange Act of 1934. It mandates entities dealing with securities to register as brokers and clearing agencies. The notice drew criticism from Digital Chamber. It argued that the SEC’s regulatory strategy for the blockchain ecosystem does not align with its investor protection mandate.
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