A glitch with the Robinhood Markets Inc’s platform allowed its customers to borrow unusually large sums of money to trade with, against the standard industry practice, Bloomberg reported on Tuesday.
The glitch was noticed when multiple users of the discussion forum Reddit started posting about the “infinite leverage” they just discovered on the r/wallstreetbets subreddit.
Buying on margin — as the practice of borrowing money from the exchange desk to purchase stocks is called — is regulated by the Federal Reserve Board in the U.S.
The existing regulations allow brokers to lend up to 50% in value to the customers. Robinhood users managed to leverage an overwhelmingly large margin, significantly above the limit.
The users who benefitted from the glitch are unlikely to get away with their earnings.
Donald Langevoort, a law professor at Georgetown University, told Bloomberg that they could be charged with securities fraud or face restitution if Robinhood goes to court.
“If there’s an element of deceit, that you got this by exploiting a loophole in a system, I can see how that could become a securities fraud case,” Langevoort told Bloomberg.
“The other possibility is just the basic common law of restitution. If you take advantage of someone’s mistake to line your own pockets, you need to pay them back,” he added.
Robinhood declined to give further details to Bloomberg, but said that they are “aware of the isolated situations and communicating directly with customers.”