Digital investment platform Robinhood is reportedly facing around 30 different lawsuits from traders for shutting down or not supporting GameStop trading.
Several groups of Robinhood‘s clients have filed lawsuits against the stock trading service provider. Lawsuits have alleged the firm violated certain laws by imposing various restrictions on trading activities.
Robinhood’s management has stated that these restrictions were required to satisfy certain obligations or requirements. Notably, the company restricted shares to GameStop and AMC Theatres amid the WallStreetBets/Reddit frenzy.
As reported, Wall Street hedge funds had been trying to short the stock of these companies, however, a coordinated online campaign by Redditors managed to dramatically drive up the price of the shares. Wall Street companies have now lost billions of dollars, because of these unexpected activities. It also apparently caused Robinhood to restrict the purchase of shares via its mobile app, and also led to mass-outages.
Robinhood is now facing over 30 civil lawsuits from its customers. These cases are related to the restrictions the company had imposed which included temporarily limiting buy orders of certain stocks this past week.
Several groups of Robinhood app users have now filed various lawsuits against the company (Robinhood Markets Inc.) in US federal courts (in the state of California, New Jersey, Texas and Florida). The suits claim that Robinhood has violated applicable laws by imposing trading restrictions on its stock trading platform. The lawsuits also allege that the firm has violated its contract with clients and its fiduciary duty.
Robinhood’s management stated that the applied trading restrictions were necessary for the firm to meet its clearinghouse obligations and other regulatory guidelines, however, when asked by the WSJ, a spokesperson from the company would not comment further on the situation.
This past week, Redditors – organized on the WallStreetBets message board – had managed to successfully drive up the price of the stocks of struggling businesses in an attempt to counter widely-used short-selling strategies by major Wall Street hedge funds.
Hedge funds have always tried to place bets against struggling companies, such as videogame retail firm GameStop Corporation and movie-theatre business AMC Entertainment Holdings Inc., however, through the social media-organized campaign, shares in these firms had surged dramatically.
Shares in GameStop had closed above $347 on January 27, 2021, after trading as low as $20 or less just (about) a month ago.
Responding to these highly irregular activities, Robinhood and various other stock trading app services had imposed trading restrictions on certain stocks. But these actions led to users becoming quite angry or frustrated, as they might have only been left with the choice of holding on to their stocks or simply selling them off.
Shares in GameStop and AMC declined sharply on Thursday (February 3, 2021) after the restrictions had been imposed, however, they were able to recover by the next day on Friday when Robinhood began permitting limited amounts of buy orders.
On Tuesday, GameStop shares had closed at around $90, before Robinhood eased certain trading restrictions the following day. The WSJ reports that there’s now a lawsuit submitted this past Thursday in the Southern District of New York which alleges that Robinhood “deprived their customers of the ability to use their service” and potential gains from trading for “no legitimate reason.”
Another lawsuit claims that a user of the Robinhood app (filed in the Northern District of California) had restricted investors’ ability to make investments in the open market, and was also trying to manipulate the market in order to benefit certain individuals and financial institutions that weren’t even Robinhood clients.