Robinhood, the company that offers commission-free stock and options trading, suffers a data breach
In a statement, Robinhood said that 310 people had their names, dates of birth, and zip codes exposed. Ten customers had “more extensive account details revealed,” Robinhood said without revealing further details. The company added in the statement that “We believe that no Social Security numbers, bank account numbers or debit card numbers were exposed and that there has been no financial loss to any customers as a result of the incident.”
The bad actor was able to access the trading platform’s customer service system by pretending to be a customer service employee while on the phone. Even though Robinhood stopped the data breach from being worse than it was, the company said that the attacker demanded an extortion payment. Robinhood said that it informed law enforcement about the attack but it did not say whether it gave in to the extortion demands.
Selling a stock short is the opposite of buying low and selling high. Investors borrow shares that they don’t own and sell them. This is done using a margin account which amplifies the leverage.
With a short sale, the investor profits when the stock falls allowing him to buy back the shares that were sold at a lower price. The borrowed stock is returned to the lender, and the difference in the buy and sell price pocketed.
The goal was for small investors to force rich hedge-fund types to cover their short sales at huge losses
And if you get a large group of investors buying and selling on Robinhood who are all following recommendations posted on social media, it forces the pros to cover their shorts by buying the stock. And if there is one thing that a hedge fund manager hates, it is losing money.
These funds had heavy exposure on the short side to GameStop, BlackBerry (once a Wall Street darling), Nokia, and others. To prevent its customers from potentially losing their shirts (pants, and phones), Robinhood eventually banned its subscribers from trading the aforementioned shares. This led these stocks to decline bathing Robinhood members in red ink.
The roller coaster took many new investors for a ride. GameStop rose from less than $20 to over $400 in about five weeks. Less than a month later it was back down below $100. The shares hit $300 in June and now trade at $218.