By: Christian Schweitzer

The runaway freight train that is the American student debt crisis continues to accelerate, as borrowers now owe a collective $1.73 trillion in debt.[1] As President Biden and Congress press forward with retroactive reforms to cancel debt for certain limited classes of borrowers,[2] it seems worthwhile to return to conversations about forward-looking reforms to minimize new debt. One potential guardrail to new student debt is the Income Share Agreement (“ISA”),[3] a financing product that serves as an alternative to student loans by offering students educational funding in exchange for the student’s promise to pay the lender a fixed portion of their future income for a set number of years.[4]

Though the principles that underlie ISAs arguably date back to human capital contracts envisioned by free marketeer Milton Friedman,[5] their proliferation into the realm of higher education is relatively recent. In 2002, a Chilean company called Lumni created a fund to invest in students pursuing higher education, with the expected returns to be an agreed percentage of the students’ future income for ten years following graduation.[6] Since then, Lumni and others have expanded to the United States, and the ISA model has been adopted by nonprofit, for-profit, and government entities.[7] While ISAs are increasing in popularity, data on the ISA education financing market share is lacking.[8] Analyzing the client base of Vemo,[9] a leading education finance intermediary, as a proxy, researchers estimate that in addition to private ISA funds, roughly sixty colleges in the U.S. offered ISA financing as of July 2019, up from eight colleges in 2017.[10]

Advocates for the expansion of ISAs see them as more than an alternative to student loans but offering a host of other benefits, including equality of opportunity, student protections, information transparency, innovation, and student support.[11] As a quintessentially free-market device, these experts argue that ISAs open the doors of higher education to students of all racial and financial backgrounds, without the need for federal subsidies.[12] Further, ISAs can be more student protective than traditional private loans, because the risk of low post-graduate income or unemployment is allocated to the lender.[13] Because ISAs carry such low risks to students, they may be attractive to debt-averse students for whom higher education would be otherwise inaccessible.[14] Additionally, ISAs incentivize lenders to offer academic and career support to students, because students who go on to be high earners present the greatest return on investment.[15] Lastly, competition between lenders should encourage innovation in the delivery of financing and education itself, as investors will be more willing to dedicate dollars towards more venerable education providers.[16]

As ISAs have grown in popularity, they have also been subjected to a great deal of scrutiny, including from student’s rights organizations.[17] The harshest of perspectives describes the ISA arrangement as a modern-day indentured servitude because they create the opportunity for a borrower’s repayment to be much more than the value of their education.[18] Indeed, there are legitimate moral concerns created by allowing private funds and corporations to effectively create ownership interests in aspiring young professionals.[19] Additionally, there are practical concerns that ISAs are ripe for unfairness due to opportunities presented for unethical conduct by both lenders and borrowers.[20] Borrower exploitation of the system may manifest as either adverse selection, opting into an ISA knowing privately they intend to earn less than declared in the application process, or as moral hazard, where a borrower does not work as hard for economic success because earning more will lead to paying more to the lender.[21] Lender exploitation could arise by drafting unfair terms for the rate or duration of repayment, as well as inequality in selecting groups who are most often approved for funding.[22] Lastly, critics note that additional risks for investors in ISAs could lead to repayment ultimately being more expensive for successful students than traditional student loans. [23]

Potential weaknesses aside, a nationally representative survey found that 46% of individuals support ISAs to only 22% who oppose them.[24] Given this support and the utility of ISAs, what can regulators do to mitigate their harms and protect borrowers? Some ISA researchers have recommended comprehensive drafting of new regulations which balance controls against likely borrower and lender abuses, in a manner that attempts to anticipate new loopholes lending contracts could include without curbing the innovation that makes ISAs desirable.[25] On the contrary, borrower advocates have argued that ISAs operate similarly to traditional credit agreements and thus can be governed by existing consumer financial protection regimes at the state and federal level, such as the Equal Credit Opportunity Act.[26] Still, others have called for analysis on a case-by-case basis, advocating for simply categorizing ISAs as analogous to a type of traditional transaction and then regulating it under existing regimes. [27]

ISAs are not a one-size-fits-all solution to ongoing student debt issues in the United States. However, they can be a tool in the swiss army knife of policymakers that contributes to meaningful progress. Especially for lower-income and risk-averse students, ISAs can provide a pathway to higher education that traditional student loans do not. For ISAs to be most effective, regulators must continue to work towards solutions that leave the door open to lending innovation, while cutting off avenues for predatory practices. With proper oversight, the broader implementation of ISA funding can be an important piece of next-generation education reform.


[1] Abigail Johnson Hess, The U.S. has a Record-breaking $1.73 Trillion in Student Debt—Borrowers from These States Owe the Most on Average, CNBC (Sept. 9, 2021, 1:03 PM), https://www.cnbc.com/2021/09/09/america-has-1point73-trillion-in-student-debtborrowers-from-these-states-owe-the-most.html.

[2] Zack Friedman, Biden has Cancelled $11.5 Billion of Student Loans, but Here’s What This Means for Student Loan Forgiveness, Forbes (Oct. 12, 2021, 8:30 AM), https://www.forbes.com/sites/zackfriedman/2021/10/12/biden-has-cancelled-115-billion-of-student-loans-but-heres-what-this-means-for-student-loan-forgiveness/?sh=3a8546ea7fd7.

[3] Income Share Agreements, Student Borrower Prot. Ctr., https://protectborrowers.org/income-share-agreements/ (last visited Oct. 18, 2021).

[4] Id.

[5] Shu-Yi Oei & Diane Ring, Human Equity: Regulating the New Income Share Agreements, 68 Vand. L. Rev. 681, 685 (2015).

[6] Id. at 693–94.

[7] Id. at 693.

[8] Richard Price, Unlocking the Potential of ISAs to Tackle the Student Debt Crisis, Christensen Inst. 7 (Aug. 2019), https://files.eric.ed.gov/fulltext/ED603097.pdf

[9] About Us, Vemo, https://vemoeducation.com/about-us/ (last visited Oct. 18, 2021).

[10] See Price, supra note 8, at 7.

[11] Miguel Palacios et al., Investing in Value, Sharing Risk: Financing Higher Education Through Income Sharing Agreements, Am. Enter. Inst. 1–2 (Feb. 2014), https://vtechworks.lib.vt.edu/bitstream/handle/10919/95112/InvestingValueSharingRisk.pdf?sequence=1.

[12] Id. at 7.

[13] Id. at 8.

[14] Id.

[15] Id. at 9.

[16] Id. at 8–9.

[17] See Income Share Agreements, supra note 3.

[18] Elliot Hannon, Is This Indentured Servitude or the New Venture Capital?, SLATE (Oct. 29, 2013, 10:45 AM), https://slate.com/business/2013/10/companies-look-to-loan-you-money-in-return-for-a-percentage-of-your-future-earnings.html.

[19] See, e.g., Ken Previti, The American School for Indentured Servants, RECLAIM REFORM (June 19, 2013), https://reclaimreform.wordpress.com/2013/06/19/the-american-school-for-indentured-servants/ (discussing how corporations are legally indenturing college students as a creative means to profit).

[20] See Oei & Ring supra note 5, at 708.

[21] Greg Madonia & Austin Smith, My Future or Our Future? The Disincentive Impact of Income Share Agreements, Mia. Univ. Farmer Sch. of Bus. 1, 21 (2016).

[22] Stephen Hayes & Alex Milton, Solving Student Debt or Compounding the Crisis? Income Share Agreements and Fair Lending Risk, Student Borrower Prot. Ctr. 4–5 (2020), https://protectborrowers.org/wp-content/uploads/2020/07/SBPC_Hayes_Milton_Relman_ISA.pdf.

[23] See generally Jeff Schwartz, The Corporatization of Personhood, 2015 U. Ill. L. Rev. 1119 (2015) (explaining that ISA fees and other social or transactional costs can add up to make the arrangement burdensome for the borrower).

[24] Jennifer Delaney et al., Perceptions of Income Share Agreements: Evidence from a Public Opinion Survey, 45 J. Edu. Fin. 97, 106 (2019).

[25] Dubravka Ritter & Douglas Webber, Modern Income-Share Agreements in Postsecondary Education: Features, Theory, Applications, Fed. Rsrv. Bank of Phila. 34 (Dec. 2019), https://www.luminafoundation.org/wp-content/uploads/2020/01/modern-isas.pdf.

[26] Hayes & Milton, supra note 22, at 9. Benjamin Roesch, Applying State Consumer Finance and Protection Laws to Income Share Agreements, Student Borrower Prot. Ctr. 7–10 (Aug. 2020), https://protectborrowers.org/wp-content/uploads/2020/08/ISAs-and-State-Law.pdf.

[27] Oei & Ring, supra note 5, at 709–10.

By Elizabeth A. Napps

The end of January 2021 brought a few trending headlines.  We all expected to see stories of President Joe Biden’s inauguration, if not breakout star poet Amanda Gorman.  The unexpected story, however, came the following week when Americans were reminded of the existence of GameStop and learned all about “stonks.”  To the uninitiated, the term “stonks” references a popular meme poking fun at the unpredictability and (in)sanity of the stock market.[1]  Another new household name was the Reddit forum “r/wallstreetbets,” which is self-described as “a community for making money and being amused while doing it.”[2]  Users of the subreddit coordinated to purchase previously unpopular stocks, most notably GameStop, ultimately leading to a “10-day realized volatility [of] 308%” just prior to the market opening on January 26, 2021.[3]  By the close of trading on January 27, 2021, the stock price had increased by 1,915 percent from the beginning of the year.[4]

As GameStop stock surged throughout the week, the Securities and Exchange Commission (the “SEC”) and the White House acknowledged monitoring market volatility to “maintain fair, orderly, and efficient markets . . . .”[5]  In response to the volatility, trading apps including Robinhood Markets, Inc. (“Robinhood”) placed temporary pauses on trading of the affected stocks.[6]  Two days after its first statement, the SEC, without naming any specifics, again acknowledged its close review of the “actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities;” pledged to protect investors from “abusive or manipulative trading activity that is prohibited by the federal securities laws;” and cautioned investors against participating in such activity.[7]

There has been extensive fallout and speculation about what actions the SEC may take against individual traders and platforms like Robinhood, but what does it all mean? What is really likely to happen?

Individual Traders

The Securities Exchange Act of 1934 (the “Exchange Act”) was enacted to regulate and control transactions in securities and “insure the maintenance of fair and honest markets in such transactions.”[8]  Although anyone can invest in the stock market, there are some regulations that must be followed.  Primary among them here is the prohibition of market manipulation.  Under Section 9 of the Exchange Act, it is unlawful for a person to effect any transaction in a security to “creat[e] a false or misleading appearance of active trading in any security . . . or a false or misleading appearance with respect to the market for any such security . . . .”[9]  Although the Commodity Futures Trading Commission has separately recognized a four-part test regarding manipulation,[10] the SEC’s definition of “market manipulation” remains in flux to a degree.[11]

Although it may take months or years for the SEC to complete any investigation, enforcement actions, or criminal prosecutions against Reddit investors appear unlikely except in exigent circumstances.[12]  For example, Massachusetts is investigating one high profile Redditor, Keith Gill, for a possible violation of state securities regulations because he has a higher fiduciary duty as a registered broker-dealer and previously worked for MassMutual.[13]  After his identification, Gill became the face of early investors who helped increase the popularity of GameStop stock, with even the House Committee on Financial Services calling him to testify during its hearings about recent market volatility.[14]  Gill testified that his only involvement in the GameStop trading was as an amateur investor sharing his ideas solely for the educational value, not manipulation.[15]

Generally, Redditors were largely transparent about their motives and any charge against them would diverge from a typical SEC case.[16]  Although some have characterized the trading as a “pump and dump scheme,” wherein promoters first “try to [pump up] the price of a stock with false or misleading statements” before “selling their own holdings of the stock [and] dumping shares into the market,”[17] questions linger over whether any false or misleading transactions were ever actually made.[18]  Many later investors were evidently joining the bandwagon of rising stock prices and excited to see if their efforts could disrupt Wall Street.[19]  Considering the high volume of media coverage, the most likely enforcement targets would be early investors and participants in the Reddit forum, like Gill.[20]  Although the SEC would need to match the individual traders to posts on Reddit, this would likely not be an impossible feat.[21]  On the whole, the consensus among observers remains that it would be difficult to prove a case against the typical Reddit investor.[22]

Robinhood and Other Platforms

In the wake of Robinhood and other platforms temporarily freezing trading on the suspect stocks, an immediate uproar resulted in over thirty lawsuits against the company[23] and bipartisan congressional calls to investigate.[24]  For its part, Robinhood said that the “halting of buy orders and leveraged trading” was “entirely about market dynamics and clearinghouse requirements.”[25]  Robinhood CEO Vlad Tenev repeated this refrain while testifying to Congress about the company’s actions.[26]  Indeed, former SEC chief economist Chester Spatt told Yahoo Finance that this action was actually an example of the regulations working, because the firm needed to halt trading in order to make sure the high volume of trades could be covered.[27]

Observers also emphasize that Robinhood’s Customer Agreement (the “Agreement”) with each user allows for this action.[28]  The Agreement includes provisions about the clearance of trades, Robinhood’s right to “prohibit or restrict the trading of securities” at its discretion, and even an arbitration agreement.[29]  Furthermore, the Agreement includes a provision about applicable laws and regulations, which permits Robinhood to not complete “any transaction it believes would violate any federal or state law, rule or regulation or the rules or regulations of any regulatory or self-regulatory organization.”[30]  Based on the SEC’s acknowledgement of market volatility and the suspect nature of the increased trading on the securities at issue, it is plausible that Robinhood could rely on this provision as well.  In an early indication that courts would be likely to side with Robinhood, the Central District of California recently denied a request for a temporary restraining order that would have forced Robinhood “to abstain from any further limitations on trading in any stock . . . .”[31]

Future Impact

Although much of the conversation is centered on what already occurred, there remains a question of what may happen to future investors.  There is already some indication that the SEC is watching social media more closely and may be inclined to take action against future attempts by a subreddit or other congregation of amateur traders to spearhead a pump and dump scheme.  On February 11, 2021, the SEC enacted a two-week trading suspension for SpectraScience, Inc. (“SCIE”) under section 12(k) of the Exchange Act.[32]  Although this action was in part because the corporation is inactive, the SEC further acknowledged that “since late January 2021, certain social media accounts may be engaged in a coordinated attempt to artificially influence SCIE’s share price . . . .”[33]  This suggests a new inclination by the SEC to suspend trading where social media activity may have contributed to market manipulation.[34]  A former SEC senior trial counsel hypothesized that the SEC did not halt trading on GameStop because of an “inability to identify an actionable violation of the federal securities laws . . . .”[35]  Although that may have been true with regards to GameStop and other similarly situated stocks, this was evidently not the case with SCIE.

In addition to the SEC’s seemingly new willingness[36] to suspend trading in part because of social media influence, prospective traders should also be cautious of joining similar Reddit-led stock purchases because it is clear they work.  Certainly, social media-inspired investing seems to be becoming a trend.  Indeed, r/wallstreetbets currently boasts over 9.2 million users[37] and a recent Elon Musk tweet of an investment meme garnered a million likes.[38]  Although famous investors like Musk are at more risk of being investigated for illegal stock touting, it is not inconceivable the SEC would choose to investigate other traders as well.[39]  Continued market volatility of this sort may soon appear to be a premeditated, coordinated plan by Redditors and the like to drive stock prices up in manipulative schemes.  A savvy investor would be wise to avoid jumping on the bandwagon.[40]


[1] Jordan Weissmann, What We Talk About When We Talk About Stonks, Slate (Jan. 28, 2021, 3:53 PM), https://slate.com/business/2021/01/stonks-not-stocks-got-it.html (describing “stonks” as “an exclamation . . . that you don’t take any of this finance stuff too seriously, that you are in it as much for the [laughs] as the opportunity to actually make a buck”).

[2] The WSB FAQ, Reddit, https://www.reddit.com/r/wallstreetbets/wiki/faq (last visited Feb. 22, 2021).  For an inside view about the attitudes of some Redditors, see Caitlin McCabe, A Week Inside the WallStreetBets Forum That Launched the GameStop Frenzy, Wall St. J. (Feb. 13, 2021, 2:41 PM), https://www.wsj.com/articles/a-week-inside-the-wallstreetbets-forum-that-launched-the-gamestop-frenzy-11613212202?mod=hp_lista_pos2.

[3] Matt Levine, GameStop Is Just a Game, Bloomberg (Jan. 26, 2021, 12:14 PM), https://www.bloomberg.com/opinion/articles/2021-01-26/will-wallstreetbets-face-sec-scrutiny-after-gamestop-rally.

[4] Dean Seal, White House, SEC “Monitoring” Volatile GameStop Stock, Law360 (Jan. 27, 2021, 9:07 PM), https://www.law360.com/articles/1349195.

[5] Public Statement, Sec. & Exch. Comm’n, Joint Statement Regarding Ongoing Market Volatility (Jan. 27, 2021), https://www.sec.gov/news/public-statement/joint-statement-ongoing-market-volatility-2021-01-27; see also Seal, supra note 4.

[6] Tucker Higgins, Lawmakers from AOC to Ted Cruz Are Bashing Robinhood Over Its GameStop Trading Freeze, CNBC (Jan. 28, 2021, 5:17 PM), https://www.cnbc.com/2021/01/28/gamestop-cruz-ocasio-cortez-blast-robinhood-over-trade-freeze.html.  Affected stocks on Robinhood included GameStop, American Airlines, AMC, BlackBerry, Bed Bath & Beyond, Castor Maritime, Express, Koss, Nokia, Sundial Growers, Tootsie Roll Industries, and trivago.  Id.

[7] Public Statement, Sec. & Exch. Comm’n, Statement of Acting Chair Lee and Commissions Peirce, Roisman & Crenshaw Regarding Recent Market Volatility (Jan. 29, 2021), https://www.sec.gov/news/public-statement/joint-statement-market-volatility-2021-01-29?source=content_type%3Areact%7Cfirst_level_url%3Anews%7Csection%3Amain_content%7Cbutton%3Abody_link; see also Investor Alert: Thinking About Investing in the Latest Hot Stock?, Sec. & Exch. Comm’n (Jan. 30, 2021), https://www.sec.gov/oiea/investor-alerts-and-bulletins/risks-short-term-trading-based-social-media-investor-alert (cautioning potential investors about the risks of following social media trends).

[8] 15 U.S.C. § 78b, https://www.govinfo.gov/content/pkg/USCODE-2018-title15/pdf/USCODE-2018-title15-chap2B-sec78b.pdf.

[9] 15 U.S.C. § 78i(a), https://www.govinfo.gov/content/pkg/USCODE-2018-title15/pdf/USCODE-2018-title15-chap2B-sec78i.pdf.

[10] Prohibition on Price Manipulation, 76 Fed. Reg. 41,398, 41,407 (July 14, 2011) (to be codified at 17 C.F.R. § 180.2), https://www.govinfo.gov/content/pkg/FR-2011-07-14/pdf/2011-17549.pdf (confirming that the Commission will apply a four-part test developed in case law: “(1) That the accused had the ability to influence market prices; (2) that the accused specifically intended to create or effect a price or price trend that does not reflect legitimate forces of supply and demand; (3) that artificial prices existed; and (4) that the accused caused the artificial prices.”).

[11] See Alexis Keenan, Will the SEC Sue GameStop Traders? The Case Could Pose a ‘Super Weird’ Challenge, Yahoo Fin. (Jan. 28, 2021), https://finance.yahoo.com/news/will-the-sec-sue-gamestop-traders-183845241.html; Levine, supra note 3 (“Nobody knows what this means.”).

[12] Bruce Brumberg, Investigations Into GameStop Trading and Reddit: Former SEC Enforcement Chief Provides Insights, Forbes (Feb. 9, 2021, 10:00 AM), https://www.forbes.com/sites/brucebrumberg/2021/02/09/investigations-into-gamestop-trading-and-reddit-former-sec-enforcement-chief-reveals-insights/ (suggesting that registered financial advisors or those engaging in illegal touting may be targeted by the SEC).

[13] Andy Rosen, Regulators Subpoena Mass. Resident ‘Roaring Kitty’ Regarding GameStop Saga, Bos. Globe (Feb. 9, 2021, 6:06 PM), https://www.bostonglobe.com/2021/02/09/business/mass-regulators-subpoena-local-man-known-roaring-kitty-gamestop-saga/.  Keith Gill was separately named a defendant in a proposed class-action lawsuit for allegedly misleading investors through his YouTube channel, though he maintains his innocence.  Christian Berthelsen, “Roaring Kitty” Sued for Securities Fraud Over GameStop Rise, Bloomberg (Feb. 17, 2021, 12:31 PM), https://www.bloomberg.com/news/articles/2021-02-17/-roaring-kitty-sued-for-securities-fraud-over-gamestop-rise (noting the case is Iovin v. Gill, No. 21-cv-10264, D. Mass. (Springfield)).

[14] See Nathaniel Popper, Reddit’s ‘Roaring Kitty’ Will Speak at GameStop Hearing, N.Y. Times (Feb. 12, 2021), https://www.nytimes.com/2021/02/12/business/gamestop-hearing-roaring-kitty.html.  This is the first of three hearings about market volatility, with the SEC expected to feature in the future.  See @RepMaxineWaters, Twitter (Feb. 19, 2021, 5:48 PM), https://twitter.com/RepMaxineWaters/status/1362896862957756418.

[15] Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide: Hearing Before the H. Comm. on Fin. Servs., 117th Cong. (2021), https://docs.house.gov/meetings/BA/BA00/20210218/111207/HHRG-117-BA00-Wstate-GillK-20210218.pdf (statement of Keith P. Gill).

[16] See Brumberg, supra note 12; see also Keenan, supra note 11 (noting a case could “unravel” because the traders “appear to have acted openly”).

[17] Pump and Dump Schemes, Sec. & Exch. Comm’n, https://www.investor.gov/protect-your-investments/fraud/types-fraud/pump-and-dump-schemes (last visited Feb. 22, 2021) (cautioning that investors lose money once shares flood the market and drive the price per share down).  The volatility in the market led to a “short squeeze,” which occurs when stock prices surge, forcing short sellers, who predicted the price would drop, to purchase the stock to protect themselves from further losses, thus increasing the price even more.  See April Joyner & Saqub Iqbal Ahmed, “GameStop Effect” Could Ripple Further as Wall Street Eyes Short Squeeze Candidates, Reuters (Jan. 28, 2021, 1:30 PM), https://www.reuters.com/article/us-retail-trading-shorts/gamestop-effect-could-ripple-further-as-wall-street-eyes-short-squeeze-candidates-idUSKBN29X2MG.  Except in the most extreme cases of a “short squeeze,” the SEC rarely prosecutes for manipulation.  See Complaint, Sec. & Exch. Comm’n v. Falcone, No. 12 CIV 5027 (S.D.N.Y. June 27, 2012), 2012 WL 2457466 (available at https://www.sec.gov/litigation/complaints/2012/comp-pr2012-122-2.pdf).

[18] See Brumberg, supra note 12; see also Yoel Minkoff, GameStop Rally: Is there a Case for Market Manipulation?, Seeking Alpha (Jan. 31, 2021, 9:09 AM), https://seekingalpha.com/news/3656452-gamestop-rally-is-there-a-case-for-market-manipulation (suggesting that “irrational exuberance” does not equate to “fraud and misinformation”).

[19] See Dave Michaels & Alexander Osipovich, “GameStop Stock Surge Tests Scope of SEC’s Manipulation Rules, Wall St. J. (Jan. 28, 2021, 7:49 AM), https://www.wsj.com/articles/gamestop-surge-tests-scope-of-secs-manipulation-rules-11611838175; see also McCabe, supra note 2 (describing some investors’ views); @elonmusk, Twitter (Jan. 26, 2021, 4:08 PM), https://twitter.com/elonmusk/status/1354174279894642703 (addressing the activity in a more mainstream outlet).

[20] See, e.g., Keenan, supra note 11 (“Regulators may have more success targeting the buying behavior that took place at the very beginning of the effort, [Michigan School of Law professor Gabriel Rauterberg] said.”).

[21] Id.

[22] See Minkoff, supra note 18 (quoting Duke Law Prof. Gina-Gail S. Fletcher as saying, “[t]he statutory provisions and the case law related to [market manipulation] are all over the place and they don’t favor the SEC”); see also Brumberg, supra note 12 (“[I]t could be tough to prove [a] case.”).

[23] Mengqi Sun, Robinhood Faces Civil Lawsuits Over Trading Restrictions, Wall St. J. (Feb. 3, 2021, 3:32 PM), https://www.wsj.com/articles/robinhood-faces-civil-lawsuits-over-trading-restrictions-11612384364?page=1.

[24] Higgins, supra note 6.  

[25] Ethan Wolff-Mann, Robinhood “Didn’t Change the Rules” on Users Amid Market Mayhem, Former SEC Economist Explains, Yahoo Fin. (Jan. 29, 2021), https://www.yahoo.com/lifestyle/robinhood-didnt-change-the-rules-chester-spatt-204321652.html (quoting Robinhood CEO Vlad Tenev).  Clearinghouses serve as intermediaries between buyers and sellers in the transfer of securities, and may ask members to front more money, called margin, in the event of volatile market and risky trades.  See Telis Demos, Why Did Robinhood Ground GameStop? Look at Clearing, Wall St. J. (Jan. 29, 2021, 7:33 PM), https://www.wsj.com/articles/how-clearing-demands-grounded-the-wallstreetbets-stocks-for-a-day-11611966092?mod=article_inline (explaining why a broker like Robinhood would choose to suspend trading in the face of a possible margin call).

[26] Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide: Hearing Before the H. Comm. on Fin. Servs., 117th Cong. 8 (2021), https://financialservices.house.gov/uploadedfiles/hhrg-117-ba00-wstate-tenevv-20210218.pdf (statement of Vladimir Tenev, CEO, Robinhood Markets, Inc.).

[27] Wolff-Mann, supra note 25.

[28] See id.; Jeff John Roberts, Robinhood is Being Sued Over the GameStop Meltdown. Do Investors Have a Case?, Fortune (Jan 28, 2021, 07:44 PM), https://fortune.com/2021/01/28/robinhood-class-action-lawsuit-gamestop-gme-amc-stocks-walstreetbets-halted-purchasing/ (suggesting that the lawsuits may just be a tactic to reach a quick settlement in the face of an “uphill” legal battle).

[29] Robinhood Financial LLC & Robinhood Securities, LLC Customer Agreement, Robinhood 8, 11, 29 (last updated Dec. 30, 2020), https://cdn.robinhood.com/assets/robinhood/legal/Robinhood%20Customer%20Agreement.pdf.

[30] Id. at 9.

[31] Dean Seal, Early Robinhood Ruling Marks Rocky Start for Traders’ Suits, Law360 (Feb. 11, 2021, 8:30 PM), https://www.law360.com/securities/articles/1354013/early-robinhood-ruling-marks-rocky-start-for-traders-suits (noting that Judge Virginia Phillips held that the plaintiff trader “failed to establish a likelihood of success on the merits”).

[32] In re SpectraScience, Inc., File No. 500-1 (Feb. 10, 2021), https://www.sec.gov/litigation/suspensions/2021/34-91101-o.pdf; see also 15 U.S.C. § 78l(k), https://www.govinfo.gov/content/pkg/USCODE-2018-title15/pdf/USCODE-2018-title15-chap2B-sec78l.pdf.

[33] Id.

[34] Seal, supra note 4.

[35] Id. (quoting Nick Morgan).

[36] This is not the first time the SEC has taken a close look at social media and message boards.  See, e.g., Press Release, Sec. & Exch. Comm’n, SEC Brings Fraud Charges in Internet Manipulation Scheme (Sept. 20, 2000), https://www.sec.gov/news/press/2000-135.txt (reaching a settlement with an investor accused of online market manipulation; Nicholas Groom, Whole Foods CEO Sorry for Anonymous Web Posts, Reuters (July 17, 2007, 7:10 PM), https://www.reuters.com/article/us-wholefoods/whole-foods-ceo-sorry-for-anonymous-web-posts-idUSN1725360820070718 (acknowledging an SEC probe into deceptive posts made online).  One difference between the message boards of the 1990s and today is the much larger scale.  See generally Brian Cheung, Before WallStreetBets: A History of Online Message Boards and ‘Stonks’, Yahoo Fin. (Feb. 2, 2021), https://www.yahoo.com/now/before-wall-street-bets-a-history-of-online-message-boards-and-stonks-134818361.html.

[37] See Reddit, supra note 2.

[38] @elonmusk, Twitter (Feb. 4, 2021, 2:57 AM), https://twitter.com/elonmusk/status/1357236825589432322.

[39] 15 U.S.C. § 77q(b); see Brumberg, supra note 12 (cautioning that “stock-promotional efforts” may result in liability under Section 17(b) of the Securities Act of 1933, which is a strict liability statute not requiring a finding of fault).

[40] From a practical perspective, many investors, especially novices, lost significant amounts of money by joining the investment rollercoaster at the apex.  See Drew Harwell, As GameStop Stock Crumbles, Newbie Traders Reckon with Heavy Losses, Wash. Post (Feb. 2, 2021, 5:34 PM), https://www.washingtonpost.com/technology/2021/02/02/gamestop-stock-plunge-losers/.

By Cole Tipton

SummitBridge National v. Faison

In this bankruptcy action, SummitBridge National (“National”) appeals the district court’s holding that it is barred from claiming attorney’s fees incurred after a bankruptcy petition was filed.  The contract between National and Ollie Faison (“Faison”) stated that Faison would pay “all costs of collection, including but not limited to reasonable attorneys’ fees.”  The Fourth Circuit reversed the district court’s holding and stated that the Bankruptcy Code does not preclude contractual claims to attorney’s fees that were guaranteed by a pre-bankruptcy contract.  The determination of the district court was reversed and remanded for further proceedings.

US v. Pratt

In this criminal action, Samual Pratt (“Pratt”) appeals his conviction of various counts of sex trafficking and child pornography due to evidentiary errors.  Pratt contends the district court should have suppressed evidence from his cellphone and should not have admitted certain hearsay statements.  First, the Fourth Circuit held that it was reversible error to admit evidence from Pratt’s cellphone because the phone was seized without consent and the government waited thirty-one days before obtaining a search warrant.  The Court stated that such a delay was unreasonable.  Second, the Fourth Circuit held that an unavailable witness’s hearsay statements were admissible because Pratt had procured the witness’s unavailability through phone calls and threats.  Accordingly, the Fourth Circuit vacated Pratt’s convictions on the two counts prejudiced by the cell phone evidence, vacated his sentence, and remanded.

Parker v. Reema Consulting Services, Inc 

In this civil action, Evangeline Parker (“Parker”) appeals the district court’s dismissal of her complaint against her employer, Reema Consulting Services, Inc. (“Reema”).  The central issue of the appeal was whether a false rumor circulated by Reema that Parker slept with her boss for a raise could give rise to liability under Title VII for discrimination “because of sex.”  The Fourth Circuit held that because the complaint alleged Reema spread the rumor and acted on it by penalizing the employee, a cognizable claim for discrimination “because of sex” was alleged.  The district court’s dismissal was reversed.

US Dep’t of Labor v. Fire & Safety Investigation

In this civil action, Fire & Safety Investigation Consulting Services, LLC (“Fire & Safety”) appealed the district court’s determination that they violated the Fair Labor Standards Act (“FLSA”) for failing to pay overtime compensation.  Fire & Safety uses an alternative work schedule for its employees in which an employee works 12 hours per day for 14 days and then receives 14 days off.  Because employees under this plan will work 88 hours in one work week, Fire & Safety pays its employees a blended rate for all 88 hours that is supposed to account for the 48 hours of overtime worked, rather than paying 40 hours of standard pay plus 48 hours of overtime.  The Fourth Circuit held that this blended rate fails to observe the formalities required by the FLSA which requires all overtime hours be recorded and paid at one and one-half times the standard rate of pay for all hours worked over 40.  Accordingly, the Fourth Circuit affirmed the district court’s judgment, including over $1.5 million in back wages and liquidated damages.

Trana Discovery, Inc. v. S. Research Inst.

In this civil action, Trana Discovery, Inc. (“Trana”) brought a fraud and negligent misrepresentation action against Southern Research Institute (“Southern”).  Trana alleged that Southern had provided false data in research reports of a new HIV medication it was researching.  The district court granted summary judgment for Southern on both claims.  The Fourth Circuit upheld the grant of summary judgement, stating that there was no genuine dispute of material fact due to an insufficiency of evidence regarding damages and the standard of care Southern was exacted to.  Accordingly, summary judgement was affirmed.

Jesus Christ is the Answer v. Baltimore County, Maryland

In this civil action, Jesus Christ is the Answer Church (“Church”) brought an action alleging violation of the First Amendment’s Free Exercise Clause, the Fourteenth Amendment’s Equal Protection Clause, the Maryland Declaration of Rights, and the Religious Land Use and Institutionalized Person Act.  Church alleged that Baltimore County, Maryland (“Baltimore”) had infringed upon their State and Federal rights by denying their modified petition for zoning variances to establish a church.  Several neighbors, who had expressed open hostility towards Church, opposed the petition.  After the petition was denied, Church filed an action in district court which was dismissed for failure to state a claim.  On appeal, the Fourth Circuit reversed and remanded because Church’s complaint contained facts sufficient to state a claim that was “plausible on its face.”  The Fourth Circuit held that the neighbors apparent religious bias towards Church was sufficient to plead a plausible Constitutional claim and violation of the Religious Land Use Act. 

Curtis v. Propel Property Tax Funding

In this civil action, Garry Curtis (“Curtis”) brought a suit on behalf of himself and similarly situated individuals against Propel Property Tax Funding (“Propel”), alleging violations of the Truth in Lending Act, the Electronic Funds Transfer Act, and the Virginia Consumer Protection Act.  Propel was engaged in the practice of lending to third parties to finance payment of local taxes.  The district court denied Propel’s motion to dismiss and certified two interlocutory questions.  Propel appealed, asserting that Curtis did not have standing and that he failed to state a claim for relief.  The Fourth Circuit upheld the district court’s ruling, finding that: 1) Curtis had standing because he was personally subject to the harms these consumer protection statutes were designed to protect against; and 2) Curtis had sufficiently pled violations of the lending acts because Propel was conducting consumer credit transactions.

US v. Charboneau

In this civil action, Blake Charboneau (“Charboneau”) challenges the determination that he is a “sexually dangerous person” under the civil commitment provisions of the Adam Walsh Child Protection and Safety Act of 2006.  The district court held that Charboneau was a “sexually dangerous person” within the meaning of the act and committed him to the custody of the Attorney General.  On appeal, Charboneau raised two issues: 1) whether he must be diagnosed with a paraphilic disorder to be committed under the act; and 2) if the record supported the district court’s findings.  The Fourth Circuit affirmed the district court’s judgment, holding that an actual diagnosis was not necessary under the act and the record was sufficient under a clear error standard of review.

US v. Johnson

In this criminal action, Willie Johnson (“Johnson”) appealed a district court’s order to resentence him for bank robbery under the sentencing recommendation in his original plea agreement.  Johnson argued that the government’s original agreement not to seek a mandatory life sentence under the federal three-strikes law was not beneficial because his prior state crimes should not be counted for federal three-strikes treatment.  The Fourth Circuit held that state crimes are encompassed by the three-strikes program and the district court’s decision to honor the original sentencing recommendation was affirmed.

Mountain Valley Pipeline, LLC v. 6.56 Acres of Land

In this civil action, owners of 6.56 acres of land appealed a district court judgement granted Mountain Valley Pipeline, LLC (“Pipeline”) a preliminary injunction for access and possession of property it was acquiring through eminent domain.  The Fourth Circuit reviewed the district court’s application of the test set forth in Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20 (2008) for preliminary injunctions.  In doing so, the Court found that Pipeline had established it was likely to succeed on the merits, would suffer irreparable harm, the balance of equities was in its favor, and that an injunction served the public interest.  Accordingly, the district court was affirmed.

Booking.com B.V. v. US Patent & Trademark

In this civil action, Booking.com and the U.S. Patent and Trademark Office (“USPTO”) appeal the district court’s grant of summary judgment protecting the trademark BOOKING.COM.  Booking.com appeals the district court’s grant of attorney’s fees to the USPTO, and the USPTO appeals the court’s decision that BOOKING.COM is protectable.  The Fourth Circuit held that BOOKING.COM is not generic and can be registered as a descriptive mark with secondary meaning.  Moreover, the Court upheld the grant of USPTO’s expenses because the Lanham Act requires a party to pay “all the expenses of the proceeding” when a USPTO decision is appealed to the district court.  Thus, the district court’s judgment was affirmed.

US v. Jones

In this criminal action, James Eric Jones (“Jones”) appeals the district court’s denial of a motion to vacate, set aside, or correct his sentence.  Jones was originally sentenced under the Armed Career Criminal Act (“ACCA”) which requires a mandatory fifteen-year minimum sentence for defendants with at least three prior violent felony convictions.  However, Jones claims that he does not qualify for sentencing under the act because his South Carolina conviction for assaulting, beating, or wounding a police officer is not a violent conviction as defined by the ACCA.  The Fourth Circuit held that assaulting, beating, or wounding a police officer does not qualify under the ACCA because it includes conduct that does not involve violent physical force. Therefore, the district court’s judgment was vacated and remanded.