Robinhood, the popular retail broker, has announced its plan to buy back shares worth $575 million that have become a source of contention in the wake of the crypto exchange FTX’s collapse.
The shares, owned by FTX founder Sam Bankman-Fried and worth 7.6% of Robinhood, were seized by the US Department of Justice in January as potential proceeds of criminal activity.
Robinhood is in discussions with the Department of Justice to purchase the shares at market price. The ownership of these shares has been in dispute since FTX filed for bankruptcy in November of 2022.
Apart from the DoJ, others who have claimed ownership of the shares include Bankman-Fried himself, units of FTX, and BlockFi, a bankrupt cryptocurrency lender.
The timing of the purchase is uncertain and would require approval from Robinhood’s board and assurance that the shares are free and clear of any other claims.
Robinhood’s CEO, Vlad Tenev, stated on an earnings call that the buyback plan is a sign of the company’s confidence in its future and will remove a distraction for shareholders. He added that they believe it will be accretive over time.
Robinhood’s shares saw a significant decline in value in 2022 as the company worked to reduce costs amid a decline in retail trading activity. This year, however, the shares have seen a 29% rally, compared to a 7% rise in the benchmark S&P 500 index.
The proposed buyback was announced as part of the fourth-quarter results, which showed revenues up 5% YoY to $380 million. The broker posted a net loss of $166 million, or 19 cents a share, in the last three months of 2022.
The loss was primarily due to a $57 million loss from a mishandled reverse stock split for Cosmos Health, which left Robinhood with an accidental short position in a rising market.
Despite the challenges, the company is optimistic about the future. Operating expenses, including the error, fell 12% quarter-over-quarter to $374 million.
Tenev also noted the potential effect of regulatory proposals from the US Securities and Exchange Commission, which could threaten the company’s zero-commission model by making it harder for market makers, such as Citadel Securities, to pay Robinhood for its client orders.
The Robinhood CEO has expressed concern that the proposals could result in worse execution quality and higher prices for investors.
According to Tenev, the company believes that investors are in an excellent position at the present time. They are concerned that the measures might result in worse execution quality for investors and increased pricing.
In general, the declaration made by Robinhood that it intends to purchase back shares from SBF and Gary Wang is a courageous step that demonstrates the company’s confidence in its prospects for the future.
Robinhood maintains its upbeat attitude and continues to make progress toward the achievement of its objectives, despite the difficulties and unpredictability that surround the ownership of the shares.