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The Robinhood stock trading app faces dozens of lawsuits after the company restricted several popular stocks on the r / WallStreetBets subdirectory. At least 30 parties in 10 states have sued the company in federal court, many seeking class action status. They allege that Robinhood users lost millions of dollars because they were unable to buy or sell shares during the freeze, and the company chose to “manipulate the market” to help d ‘other financial institutions.
Robinhood, which touts itself as a force for democratizing the stock market, helped facilitate an unprecedented boom around a handful of “meme stocks” last month. But on January 28, it infuriated users by freezing trading on several of those stocks. This included GameStop ($ GME) as well as AMC ($ AMC), BlackBerry ($ BB), Bed Bath & Beyond ($ BBBY) and Nokia ($ NOK). The company defended the move in a blog post, calling it a “risk management decision” made in the face of “extraordinary circumstances”. The company has denied reports that it sold some users’ shares without permission.
The response did not satisfy users. Robinhood user Brendon Nelson filed the first New York State lawsuit that day, accusing the company of negligence and breach of contract with merchants. Other lawsuits followed, with courts in New Jersey, California, Texas, Florida and other states. Some plaintiffs simply complain that they are missing a potential windfall, but others expose more specific damages: Patryk Krasowski of Illinois, for example, claims he lost $ 220,000 because Robinhood didn’t let him exercise the GameStop purchase options.
“Robinhood has completely stopped retail investors from buying [GameStop stock] for no legitimate reason, ”Nelson’s complaint read. He claims Robinhood “failed to provide an adequate explanation” for removing a profitable stock from its platform and “knowingly placed its clients at a disadvantage over clients who were using other trading applications.” Robinhood lifted the general freeze on GameStop and other actions, but it maintained strict trading limits for users.
Nelson asked that the courts force Robinhood to restore full access to GameStop trading shares, in addition to paying damages for all Robinhood users who would not be able to execute transactions in GameStop shares. Other parties have made similar pleas, and several are seeking class action status. Some lawsuits also targeted other institutions, including financial services firms Citadel Securities and Apex Clearing, which worked with Robinhood to execute transactions.
The cases were filed just a few days ago, and they may not be heard until the GameStop market bubble deflates. While a Washington judge made to certify a class action lawsuit against Robinhood last week, this case dates from 2019 and concerned the app’s “sponsorship” program. As MarketWatch note, any lawsuit could also be blocked by Robinhood’s arbitration clause – a section of the user agreement that requires disputes to be settled out of court.
However, disgruntled users aren’t the only threat to Robinhood. The company’s decision has drawn bipartisan condemnation from lawmakers, with Representative Alexandria Ocasio-Cortez (D-NY) and others calling for an investigation into the company’s decision. And CEO Vlad Tenev is expected to testify in a Feb. 18 hearing before the House Financial Services Committee.
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