Robinhood Hit With Class Action After Blocking GameStop Trades
Online stock trading app Robinhood has been hit with a class action lawsuit after blocking GameStop trades.
Yesterday, January 28, the rampant surge of GameStop’s (GME) share prices didn’t go to plan. While hitting a peak of $492.42, it quickly took a dive to $197.44 – all because trades were ‘temporarily’ suspended.
Robinhood is one of the major culprits, an app originally launched to let ‘the people’ trade next to the Wall Street bigwigs and ‘democratise’ finance. As Redditors and others tried to buy up more shares, it restricted further investment in the company, much to the anger of buyers and lawmakers across the political spectrum.
As reported by the New York Post, Massachusetts resident Brendon Nelson also claimed the app blocked users from its service by actively pulling GME from trading. His suit is filed on behalf of all US users, asking that the stock be immediately reinstated.
Trading 212, a UK trading app, also made a similar move to Robinhood in allowing users to sell, but not buy GME shares.
The lawsuit outlines: ‘On or about January 27, 2021 Robinhood, in order to slow the growth of GME deprived their customers of the ability to use their service, abruptly, purposefully, willfully, and knowingly pulled GME from their app. Meaning, retail investors could no longer buy or even search for GME on Robinhood’s app.’
It also notes how Robinhood ‘must make every effort to execute a marketable customer order that it receives promptly and fully’, in line with the Financial Industry Regulatory Authority.
Robinhood CEO Vlad Tenev defended the move to CNBC, saying: ‘In order to protect the firm and protect our customers we had to limit buying in these stocks. Robinhood is a brokerage firm, we have lots of financial requirements. We have SEC net capital requirements and clearing house deposits. So that’s money that we have to deposit at various clearing houses.’
He added: ‘Some of these requirements fluctuate quite a bit based on volatility in the market and they can be substantial in the current environment where there’s a lot of volatility and a lot of concentrated activity in these names that have been going viral on social media.’
The firm is set to allow ‘limited trading’ on GameStop stocks today, explaining in a statement: ‘We’ll continue to monitor the situation and may make adjustments as needed. To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to.’
GameStop isn’t the only focus of the wallstreetbets subreddit – AMC, Nokia, Blackberry, and Bed, Bath and Beyond have all been seeing rising share prices thanks to the efforts of small-time investors.
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