- Robinhood made a "processing error" that left its customers short on a meme stock last year.
- The error lost the trading app $57 million, the company's finance chief said on a Q4 earnings call.
Robinhood ended up down $57 million in a single day after a glitch let its trading app customers temporarily short a meme stock, according to company executives.
Little-known Cosmos Health's share price tripled on December 16, when a 1-to-25 reverse stock split for the healthcare company went into effect.
But the reverse stock split caused issues in Robinhood's trading app, allowing users to briefly sell more Cosmos shares than they owned to create a temporary short position, the company said in its fourth-quarter earnings release Thursday.
Robinhood covered the short using its cash the same day, incurring a $57 million loss from the incident. Its users aren't normally allowed to short stocks.
"A processing error caused us to sell shares short into the market, and although it was detected quickly, it resulted in a loss of $57 million as we bought back these shares against a rising stock price," CFO Jason Warnick said.
The loss suffered by Robinhood tops Cosmos' current total market capitalization, with the healthcare stock valued at $56 million as of Wednesday's closing bell.
Robinhood shares still rallied in premarket trading Thursday, climbing 5.6% to just over $11 after it said it would buy back a stake held by disgraced FTX founder Sam Bankman-Fried.
In addition, Robinhood executives will forgo around $500 million in stock-based compensation to help it cut costs.
Shares in the company are up just under 29% year-to-date, outperforming the Nasdaq Composite's 14% gain.