A Robinhood trader based in Massachusetts filed a federal lawsuit on behalf of himself and other clients following restrictions imposed by the no-fee app on transactions involving GameStop, AMC and other stocks.
The zero-commission platform is accused of engaging in market manipulation when it paused GameStop trading at multiple points over the last couple of days.
This breach caused plaintiffs Brendon Nelsonto and his colleagues to miss out on some of the highest stock market gains in recorded history, the lawsuit reads.
Nelsonto is specifically accusing Robinhood of abruptly slowing the GameStop stock’s appreciation.
“Robinhood’s actions were done purposefully and knowingly to manipulate the market for the benefit of people and financial intuitions who were not Robinhood’s customers. Since pulling the stock from their app, GME prices have gone up, depriving investors of potential gains,” he added.
The suit alleges that while Robinhood had a duty to provide a fair platform, it “has completely blocked retailer investors from purchasing GME for no legitimate reason, thereby depriving retailer investors from the benefits of Robinhood’s services.”
Robinhood’s move infuriated the app’s users to accuse it of reneging on its promise to “democratize finance for all.”
It took less than a day for big tech, big government and the corporate media to spring into action and begin colluding to protect their hedge fund buddies on Wall Street. This is what a rigged system looks like, folks! #RobinHood #RedditArmy #GME #GMEtothemoon https://t.co/UhrwGHCjng
— Donald Trump Jr. (@DonaldJTrumpJr) January 28, 2021
Robinhood is not alone, though. Most online brokers have put a halt on handling any new orders for GameStop stock, meaning investors could not close out their positions to make their profit. Some users reported losing potential gains due to not being able to complete trades, which could drag further lawsuits against their brokers.
Shares of companies such as videogame retailer GameStop escalated wildly in the last two weeks after an army of individual traders congregated on Reddit’s ‘WallStreetBets’ subreddit to collectively buy more of these shares.
Tesla CEO, Elon Musk, the world’s richest person, had given his support for the Redditors earlier, adding further momentum to GameStop’s soaring share price.
Congresswomen Step in to Highlight GameStop Saga
The speedy rise in price gained mainstream media coverage, which prompted US lawmakers to demand Robinhood to provide more information and justify its decision to restrict retail trading in shares of GameStop and other stocks.
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Democrat Alexandria Ocasio tweeted Thursday that she disagreed with Robinhood’s decision to abruptly stop transactions around the stocks that experienced Reddit-inspired dramatic rises this week.
The House representative from New York described the move as “unacceptable” and added that Congress needed to know more about Robinhood’s decision in a hearing by the US House Committee on Financial Services.
Yes @aoc. We need an investigation into RobinhoodApp’s decision and who influenced that. And this shows the need for a financial transaction tax on hedge fund shorting and SEC regulations on short selling practices. https://t.co/mYX8Ab3JwH
— Ro Khanna (@RoKhanna) January 28, 2021
I am happy to work with Republicans on this issue where there’s common ground, but you almost had me murdered 3 weeks ago so you can sit this one out.
Happy to work w/ almost any other GOP that aren’t trying to get me killed.
In the meantime if you want to help, you can resign. https://t.co/4mVREbaqqm
— Alexandria Ocasio-Cortez (@AOC) January 28, 2021
The probe is the latest headache for the upstart brokerage firm that has developed a hugely popular app that allows individuals to trade without paying any commissions.
Robinhood was fined $65 million by the SEC in December over its failure to fully disclose its practice of selling clients’ orders to market makers. In the same month, it was hit with a complaint by Massachusetts regulators. One area of focus for the investigation is Robinhood’s aggressive tactics to attract inexperienced investors and “its use of gamification strategies to manipulate customers.”
Separately, Robinhood is facing multiple investigations into repeated outages of its trading platform, as well as failure to provide a swift resolution resulting in some investors losing money after being unable to access their accounts.