Robinhood Markets Inc, the popular online brokerage platform, announced on Friday that it had reached an agreement with the United States Marshal Service (USMS) to buy back 55.3 million shares of its own stock from Emergent Fidelity Technologies, a company owned by Sam Bankman-Fried, the founder of FTX cryptocurrency exchange. The deal, worth $605.7 million, was approved by the U.S. District Court for the Southern District of New York and will allow Robinhood to regain control of its shares that were seized and transferred to the custody of the U.S. government after Bankman-Fried’s FTX and Emergent filed for bankruptcy protection last year.
The rise and fall of Bankman-Fried
Sam Bankman-Fried, a former Wall Street trader and a prominent figure in the crypto industry, founded FTX in 2019 as a derivatives exchange that offered futures, options, and leveraged tokens on various cryptocurrencies. He also launched Emergent Fidelity Technologies in 2020 as a holding company that invested in various fintech startups, including Robinhood. Bankman-Fried acquired about 7.42% of Robinhood’s shares using borrowed funds from FTX and other sources.
However, his ambitious expansion plans came to a halt in 2022 when FTX faced a series of regulatory crackdowns, lawsuits, and cyberattacks that resulted in massive losses and liquidity problems. FTX was accused of violating securities laws, facilitating market manipulation, and failing to protect customer funds and data. Several countries, including the U.S., China, Japan, and the UK, banned or restricted FTX’s operations and access to their markets. FTX’s customers also suffered huge losses due to frequent outages, glitches, and hacks on the platform.
As FTX’s financial situation deteriorated, Bankman-Fried was unable to repay his debts and creditors started to seize his assets, including his stake in Robinhood. The USMS took custody of his Robinhood shares in December 2022 after a court order and put them up for sale to recover some of the money owed by Bankman-Fried. FTX and Emergent filed for Chapter 11 bankruptcy protection in January 2023, seeking to restructure their debts and liabilities.
Robinhood’s recovery and growth
Robinhood, on the other hand, has been recovering and growing steadily since its initial public offering (IPO) in July 2021. The company, which offers commission-free trading of stocks, options, ETFs, and cryptocurrencies to millions of retail investors, raised $2.1 billion in its IPO at a valuation of $32 billion. Despite facing some controversies and challenges in 2021, such as the GameStop saga, regulatory scrutiny, customer lawsuits, and technical issues, Robinhood managed to increase its revenue, user base, and product offerings in 2022 and 2023.
The company reported revenue of $441 million for the first quarter of 2023, beating analysts’ estimates of $424.53 million. The company attributed its strong performance to the higher interest income it earned from lending money to customers to buy securities, as well as the increased trading activity and diversification of its revenue sources. The company also said that it had 11.8 million monthly active users as of March 31, 2023, down from 15.9 million a year ago but stable compared to the previous quarter.
Robinhood also announced several new features and initiatives to enhance its platform and attract more customers. The company said that it will launch 24-hour trading for five days a week, allowing customers to trade stocks and cryptocurrencies around the clock. The company also said that it will offer more educational resources, social tools, and investment options to its users, such as fractional shares, dividend reinvestment plans (DRIPs), individual retirement accounts (IRAs), and robo-advisory services.
The implications of the share repurchase deal
The share repurchase deal between Robinhood and the USMS is expected to have positive implications for both parties. For Robinhood, the deal will allow it to regain ownership of its shares that were held by an unwanted shareholder who had no influence or involvement in the company’s operations or strategy. The deal will also reduce the number of outstanding shares in the market and increase the earnings per share (EPS) for the remaining shareholders.
For the USMS, the deal will enable it to recover some of the money that was owed by Bankman-Fried and his companies. The deal will also help the USMS dispose of an asset that was difficult to sell due to legal uncertainties and market conditions. The USMS had previously tried to auction off Bankman-Fried’s Robinhood shares in February 2023 but received no bids from potential buyers.
The deal will also have an impact on Bankman-Fried and his creditors, who will lose their claim to the Robinhood shares and the potential upside they could have generated. Bankman-Fried, who was once ranked as the richest person in crypto with a net worth of over $10 billion, is now facing a bleak future as he tries to salvage his remaining assets and reputation.
