Class action brought against Robinhood over outrage over GameStop’s ban on actions

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The lawsuit, filed in the Southern District of New York, claims Robinhood’s actions rigged the market against its clients.

“Robinhood’s actions were deliberately and knowingly done to manipulate the market for the benefit of individuals and financial institutions which were not Robinhood’s customers,” the lawsuit states.

Robinhood did not respond to a request for comment. The company imposed the stock trading restrictions on Thursday citing “recent volatility.” The company said in a blog post that it would only allow users to close their positions in these stocks, which include GameStop (GME), AMC (AMC), Bed bath and beyond (BBBY), and Nokia (ENOUGH).

The lawsuit claims Robinhood’s move deprived retail investors of the potential gains they could have made by buying when the stock was weak and selling when its price rose.

Founder of WallStreetBets on the stock market frenzy: I appreciate it from the margins

GameStop’s stock has skyrocketed since Jan.11 after hiring several new board members who investors believe could help the stock boost its digital sales. Reddit’s WallStreetBets group has started promoting the action, pushing it up over 1,000% in recent weeks.

The stock surge forced short sellers who bet against the stock to buy stocks to hedge their positions, which pushed the stock higher even further.

Many day traders have taken advantage of Robinhood’s free trades, placing bets on GameStop and other actions promoted by the Reddit Group. But these customers are playing a dangerous game. Corporate fundamentals can’t stand such high stock prices, and the bubble could burst, wiping out traders who had placed big bets on GameStop and others.

“We are committed to helping our customers overcome this uncertainty,” the company said in a statement. “We fundamentally believe that everyone should have access to financial markets.”

Robinhood published another blog post Thursday afternoon saying it “would allow limited purchases of these” stocks starting Friday.

Editors get together

Following Robinhood’s decision earlier Thursday morning, Redditors set up a new forum, r / ClassActionRobinHood, to coordinate efforts towards a trial. It gathered more than 31,000 users on Thursday.
One law firm that Redditors has engaged with is ChapmanAlbin LLC, based in Cleveland, Ohio, which specializes in investments and financial fraud. The company’s home page currently displays a prompt titled “Are you a Robinhood user who has suffered losses?” as well as a way for people to submit information.

The company gathered information from more than 6,000 people as it investigated Robinhood, lawyer Philip Vujanov told CNN.

“It’s pretty unprecedented, I’ve never heard of another scenario like this,” Vujanov told CNN in a telephone interview. “There are going to be a lot of people holding the bag.”

Vujanov specifically called Robinhood’s actions today “dishonest” while quoting a tweet from Robinhood’s official Twitter account in March 2016 which stated: “People are trading.”

“Now all of a sudden they’re changing their position,” Vujanov said of Robinhood.

One avid Wallstreetbets user appalled by Robinhood’s decision was Christopher Kardatzke, 21, a recent college graduate who, along with his brother, developed free financial software used by Redditors to guide their investment strategy.

“It sounds a bit silly. The folks at r / wallstreetbets were buying GameStop and playing a game from Jenga, but it’s the same game that hedge funds have been playing for decades and decades,” Kardatzke said. “It’s a little ridiculous.”

This sentiment was echoed on Capitol Hill where Democratic Rep. Alexandria Ocasio-Cortez and Republican Senator Ted Cruz were part of a group of lawmakers berating Robinhood’s decision.

“We now need to know more about @ RobinhoodApp’s decision to prevent retail investors from buying stocks while hedge funds can freely trade stocks as they see fit,” Ocasio-Cortez tweeted.

In a subsequent tweet, Ocasio-Cortez said she will be on Twitch tonight to discuss GameStop and today’s developments.

Brian Fung, Alexis Benveniste, and Matt Egan of CNN contributed to this report.

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