A class action lawsuit seeks the court to order Robinhood to pay damages to the affected users and restore GameStop to the stock trading platform.
4 min read
Original note on PCMag
UPDATE: Robinhood is pulling out and will allow “limited purchases” of new shares in GameStop and the other affected stocks starting Friday.
Robin Hood is now facing a class action lawsuit to prevent users from buying stocks from GameStop in the current craze for “meme promotions”.
Hours after the stock trading app began restricting purchases of stocks, a Massachusetts user named Brendon Nelson filed a class action lawsuit against the company demanding payment of damages.
“Robinhood has essentially given up its customers entirely by withdrawing GME (GameStop), a standard of care so far below what is required of a company providing express business services that it amounts to giving up its duties entirely” Nelson says in the lawsuit filed in a United States district court in New York.
The same complaint alleges that Robinhood violated FINRA’s financial regulations by “failing to make every effort to fulfill a commercial order from a customer who received it in full and promptly”.
“Robinhood is removing stocks like GME from its platform to slow growth and help individuals and institutions who are not Robinhood clients but are large institutional investors or potential Robinhood investors,” he added.
Despite the class action lawsuit, it should be noted that Robinhood’s customer agreement states that the company has the authority to prohibit users from trading stocks at any time.
Nelson however urges the court to force Robinhood to grant financial relief to all affected users. The class action lawsuit also requires the GameStop app to reset on the stock trading platform.
Robinhood did not immediately respond to a request for comment. However, the company decided to block purchases of shares in GameStop, AMC, BlackBerry, and five other stocks Thursday, citing the “recent volatility” of the market.
In fact, the company’s share prices have skyrocketed thanks to collective action by users on a Reddit forum called r / wallstreetbets, which has more than 4.5 million followers. They got together to buy stocks that the hedge funds are betting against. Stock purchases shot GameStop from $ 17 on Jan. 1 to a crazy $ 469.
However, Robinhood’s decision to block stock buying has (ironically) increased volatility, which has likely caused losses for retail investors. For example, GameStop shares fell to $ 234 while AMC’s share price fell around 40%. Users who own shares in companies can only sell their shares.
The whole situation has led US lawmakers to request hearings in Congress on the matter. “Now we need to know more about the Robinhood app’s decision to prevent retail investors from buying stocks while hedge funds are free to trade the stocks at their own discretion.” tweeted US Representative Alexandria Ocasio-Cortez, Democrat of New York.