Robinhood Loses $57 Million On “Processing Error,” Plans To Buy Back Sam Bankman-Fried’s 55 Million Shares

A “processing error” regarding a $53-million healthcare company has made Robinhood Markets (NASDAQ: HOOD) record a $57-million loss in its Q4 2022 financials.

Chicago-based healthcare firm Cosmos Health (NASDAQ: COSM) announced its plan to conduct a 1-for-25 reverse stock split one Friday back in December and implemented it hours later, leaving trading portals unprepared. The stock gains, however, did not endure until markets opened on Monday; after reaching as high as $23.84 on the day, in after-hours trading however it fell down to $3.85 and fell even lower after Cosmos Health announced an equity offering.

In essence, shareholders of Robinhood were able to trade shares that they did not actually possess, causing Robinhood to take a temporary short position in the stock. The shares jumped as the corporation rushed to cover the short, triggering the loss.

“Delays in notification from third parties and process failures within Robinhood’s brokerage systems and operations in connection with the handling of a 1-for-25 reverse stock split transaction of Cosmos Health, Inc., a NASDAQ-listed company, on December 16, 2022, allowed customers, for a limited time, to execute trades selling more shares than they held in their accounts. This caused a temporary short position in that ticker symbol which Robinhood covered out of corporate cash within the same trading day,” the company explained in its press release.

The fintech firm reported a net loss of $166 million driven largely by the costly error. This translated to a loss of $0.19 per share, failing to meet analyst estimates of a $0.15 loss per share.

In the earnings call, Robinhood CEO Vlad Tenev noted the “processing error on a corporate action” that was “really disappointing.”

“A processing error caused us to sell shares short into the market, and although it was detected quickly, it resulted in a loss of $57 million as we bought back these shares against a rising stock price,” CFO Jason Warnick explained.

The company has said that it has already corrected the mistake.

Aside from the reported loss, the Q4 2022 financials also highlighted a decline in Robinhood’s active users, falling down to a two-year low of 11.4 million users.

Robinhood plans to buy back Sam Bankman-Fried’s $578 million stake

In the same Q4 2022 financials announcement, Robinhood reported that it has approved a deal to buy up to 55 million shares purchased by former FTX CEO Sam Bankman-Fried last year through Emergent Fidelity Technologies in May.

To effectuate the transfer, the retail brokerage is collaborating with the Department of Justice, which confiscated the shares in January.

READ: US Government Seizes Sam Bankman-Fried’s $460 Million Robinhood Stake Tied To FTX

“Since there is limited precedent for this type of situation, we cannot predict when, or if, the share purchase will take place,” the company said.

Bankman-Fried has been contesting the sale of his firm’s Robinhood shares. A filing was made by the FTX founder’s counsel earlier in the year arguing that the debtors are “advancing an argument for a preliminary injunction but have failed to carry their heavy burden of establish that such an extraordinary remedy is warranted.”

According to a Jan. 20 DOJ filing, Bankman-Fried owned 55,273,469 Robinhood shares, accounting for more than 7% of the company’s outstanding shares. As of Wednesday’s close, that investment was worth more than $578 million.

Robinhood Markets last traded at $10.59 on the Nasdaq.

Information for this briefing was found via CNBC, Marketwatch, Barron’s, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.