Multiple lawsuits have now been filed against Robinhood for shutting down trading around GameStop and other companies to stop a run of buying the shares.
One class action lawsuit was filed in the Southern District of New York by Brendon Nelson of Massachusetts. He claimed when they pulled GameStop from their app, retail investors like him could no longer buy any shares. He filed on behalf of all Robinhood users and is asking the Court to immediately have them reinstate the ability to trade the stock on their platforms.
By preventing the ability to buy the stock, the suit alleged they were blocking them from earning gains for no legitimate reason.
The suit claims Robinhood violated a Financial Industry Regulatory Authority (FINRA) rule, which states apps like Robinhood “must make every effort to execute a marketable customer order that it receives promptly and fully.”
As my colleague Scott Hounsell reported earlier, Robinhood now has not only prevented buying but is also now reported forcing sales, which is further infuriating investors.
In a separate suit, Richard Gatz filed in the Northern District of Illinois against Robinhood for pulling other stocks including Blackberry, Nokia and AMC Theaters which were also part of the Reddit effort to boost stocks.
Because of Robinhood’s actions, Gatz claimed that Robinhood caused him irreparable harm by dropping the value on his options by almost two hundred percent as well as the price on his Blackberry stock dropping over $10 for the day.
Gatz blamed an effort to protect “institutional investment” (the hedge funds) rather than retail customers like him. He also suggested collusion with others.
“On information and belief, the halting of trading of these stocks was to protect institutional investment at the detriment of retail customers. Furthermore, this appears to be in lock-step with other securities trading platforms, such as Ally Financial, TD Ameritrade and potentially others,” the suit states.
Like Nelson, he also asked the Court to reinstate the stock onto the app.
Robinhood claimed they were just trying to address “recent volatility.”
“We continuously monitor the markets and make changes where necessary,” Robinhood said in a statement. “In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK. We also raised margin requirements for certain securities.”
But as we reported earlier, Robinhood’s relationship with Citadel makes it clear that there’s more to look at there than just “recent volatility.”
And at this point there’s so much money that these institutional guys can lose, they may be willing to risk the lawsuits, as Dave Portnoy says, to save their very shirts.
It’s very clear that @RobinhoodApp and Hedge Funds like Citadel are saying we’ll take our chances with class action lawsuits and white collar crimes and paying people off to stay out of prison rather than their firms going bankrupt #DDTG
— Dave Portnoy (@stoolpresidente) January 28, 2021
We wrote about of the outrage at the manipulation from all sides of the political aisle, uniting people from Donald Trump, Jr; Rep. Rashida Tlaib (D-MI); Barstool’s Dave Portnoy and rapper Ja Rule.
But all the furor and the lawsuits may have just forced Robinhood’s hand, at least a bit.
Robinhood announced starting Friday, the site will “allow limited buys” of those listed securities in question such as Gamestop, but it warns that it will “continue to monitor the situation and may make adjustments as needed.”
So it sounds like the furor may have had some effect, but let’s hope they understand their future really does depend on their brand which they almost destroyed, so they better honor their commitments to their retail investors.