Robinhood Plans Buyback of Sam Bankman-Fried’s Contested Stock

Annie Massa, Bloomberg News

The Robinhood application on a smartphone arranged in Hastings-On-Hudson, New York, U.S., on Friday, Jan. 29, 2021. GameStop Corp. advanced on Friday and was on track to recoup much of Thursday’s $11 billion blow after Robinhood Markets Inc. and other brokerages eased trading restrictions on the video-game retailer. , Bloomberg

(Bloomberg) -- Robinhood Markets Inc. said it’s looking to repurchase shares previously controlled by Sam Bankman-Fried and canceled almost $500 million of stock-based compensation for its co-founders.

The online brokerage also reported a wider-than-expected loss for the fourth quarter as customers cut back on trading, according to a statement Wednesday.

“Co-founder Baiju Bhatt and I announced today that we canceled nearly $500 million of our share-based compensation to ensure the company has as many resources as possible to deliver value to customers and shareholders,” Robinhood Chief Executive Officer Vlad Tenev said in the statement. “We’re now starting to see meaningful traction on a number of the products we launched, which gives us confidence they can grow into significant business lines over time.”

Shares of the online brokerage rose 3.7% to $10.86 in extended trading at 4:49 p.m. in New York.

Net loss for the period was $166 million, or 19 cents a share. That’s more than the 11-cent average estimate of analysts surveyed by Bloomberg. Revenue climbed 5% from a year earlier to $380 million, also short of the $388.8 million predicted by Wall Street.

Crypto transaction revenue, once a key source of income, declined toward the end of 2022. The November implosion of Bankman-Fried’s FTX, previously one of the world’s largest crypto exchanges, rattled investors and triggered a plunge in Bitcoin and other digital assets. While Robinhood has been introducing new features, including retirement accounts and crypto wallets, it still earns roughly half of its revenue from trading.

An entity controlled by Bankman-Fried acquired a stake of more than 7% in Robinhood last year, and the brokerage’s board authorized the firm to “pursue purchasing most or all” of those shares, according to the statement.

The fate of the stake has remained in limbo. A Bankman-Fried entity that purchased the shares recently filed for bankruptcy. Various parties including the US Department of Justice, bankrupt crypto lender BlockFi Inc. and Bankman-Fried himself are fighting over the shares.

Stock Rebound

Robinhood’s stock, which surged 29% this year through the close of regular trading Wednesday, is still down more than 70% since the company’s July 2021 initial public offering.

After a pandemic-fueled rally unleashed a stampede of everyday investors into stocks, options and digital currencies, Robinhood has struggled to recapture traders’ interest. Fourth-quarter crypto transaction revenue tumbled 24% to $39 million from the third quarter.

While the firm has posted losses totaling more than $4.5 billion over the past two years, the bottom line has steadily improved since the third quarter of 2021 and its loss in the latest period was Robinhood’s smallest as a public company. The brokerage dismissed more than 1,000 employees last year.

QuickTake: Why the SEC Is Targeting ‘Payment for Order Flow’

One lingering threat to Robinhood’s business is a push by US regulators to change how trades from small investors are processed. A Securities and Exchange Commission proposal would disrupt the current system, in which big trading firms pay brokerages including Robinhood to execute their customers’ trades. Robinhood executives say the changes could upend a model that allows them to offer commission-free trades.

(Updates with legal fight over stock in eighth paragraph.)