Robinhood seeking to buy back stock seized from FTX founder Sam Bankman-Fried

Retail broker Robinhood said it is in talks with the US Department of Justice to buy the $575mn worth of its shares that have become a hotly-contested asset in the collapse of crypto exchange FTX.

FTX founder Sam Bankman-Fried bought 55mn shares, worth 7.6 per cent of the broker, in 2022 through his Emergent Fidelity Technologies vehicle. However the shares’ ownership has been disputed since his crypto empire filed for bankruptcy in November.

Robinhood is looking to buy the stake at market price from the justice department, which seized the shares in January as potential proceeds of criminal activity.

The timing of any purchase is highly uncertain depending on the outcome of several court actions claiming ownership of the shares. Any deal for the shares would require sign-off from Robinhood’s board and also assurance that the shares were sold free and clear of other claims on them.

As well as the DoJ, others claiming the Robinhood shares include Bankman-Fried himself, units of FTX plus bankrupt cryptocurrency lender BlockFi, which says Bankman-Fried pledged them as collateral days before FTX collapsed.

Robinhood said the buyback plan was a sign of its confidence in its future.

“We believe it will be accretive over time and removes a distraction for shareholders,” chief executive Vlad Tenev said on an earnings call on Wednesday.

Robinhood shares halved in value last year as it worked to reduce costs as the retail trading that made its name subsided following frenzied activity in 2021.

So far this year, its shares have rallied 29 per cent, compared with a 7 per cent rise for the benchmark S&P 500 index.

The proposed buyback came as part of fourth-quarter results that showed revenues up 5 per cent year on year to $380mn as rising interest income covered a drop in trading volumes.

The broker posted a net loss of $166mn, or 19 cents a share, in the last three months of 2022, compared with 20 cents a share in the third quarter.

Included in that was a $57mn loss from a mishandled reverse stock split for Nasdaq-listed Cosmos Health, which left Robinhood forced to cover an accidental short position in a rising market.

Operating expenses including the error fell 12 per cent quarter-on-quarter to $374mn. Including share-based pay, expenses were 0.2 per cent lower at $534mn.

Tenev also warned about the potential effect of regulatory proposals from the US Securities and Exchange Commission which could threaten its current zero-commission model by making it harder for market makers such as Citadel Securities to pay Robinhood for its client orders.

“We think investors have it great right now,” he said. “We’re worried that the proposals have the potential to give investors worse execution quality and higher prices.”