When US oil prices back in April of this year, traders and brokers alike were caught off guard. In recent days a class action lawsuit has been filed against E*Trade, based on accusations that the brokerage didn’t adequately warn investors of the risk.
The lawsuit seen by Finance Magnates was filed earlier this week on Tuesday in the Northern District Court of California. The document alleged that E*Trade didn’t adequately warn investors of risks by advising clients that prices could turn negative and failed to properly test its online trading platform for the possibility of .
Negative oil prices led to hundreds of millions of dollars in losses not only in the United States but across the whole industry. Clients of E*Trade alone lost hundreds of thousands of dollars.
“In offering trading services, E*TRADE assumed a duty to ensure that its systems were sufficiently equipped to reliably deliver such services under foreseeable customer demands and market conditions, such as those that occurred on April 20, 2020,” the lawsuit filed by Kabateck LLP, Girard Bengali APC and Actium LLP said.
“Plaintiffs and members of the proposed class understood and reasonably believed that E*TRADE had or would take such steps, but it did not. E*TRADE failed to adequately or properly equip itself technologically and systemically to maintain Plaintiffs and class members’ access to trading services.
“Due solely to its own negligence and failure to maintain an adequate infrastructure, E*TRADE breached obligations owed to Plaintiffs and class members and caused them substantial losses. Its failures are all the more serious due to the magnitude of the Outage, the absence of alternative means for customers to protect their investments, and the lack of communication and customer support.”
Lawsuit claims E*Trade knew of possible negative prices
The lawsuit also alleges that E*Trade had knowledge of the possibility of oil prices turning negative for weeks and still did not test its system. Furthermore, the plaintiffs accused the of suffering an outage which failed to show the accurate price of crude oil futures contracts for e-mini futures when the spot price fell below zero.
The lawsuit was filed against E*Trade Securities, LLC, and E*Trade Futures, LLC. The document alleges breach of contract, breach of the duty of good faith and fair dealing, negligence, gross negligence and unlawful competition law claim.
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