Just this past Thursday, two Robinhood users filed separate lawsuits against the investing app after it began restricting specific trading securities.
One lawsuit coming out of New York’s Southern District Court alleges Robinhood restricted transactions from certain securities, including those from Gamestop, “purposefully, willingly, and knowingly.”
The other lawsuit came from the Illinois Northern District Court, alleging the app of manipulating its platform.
An attorney for Derek Smith Law Group, Alexander Cabeceiras, who is representing Mr. Brendan Nelson from the New York lawsuit, said that “Robinhood’s mission is to ‘democratize finance for all.’ They have failed.”
In a statement with Fox News, Cabeceiras noted, “They have purposefully failed this mission and failed their clients in an attempt to—what appears to be—appease their investors and/or potential investors.”
Following the unexpected trading volume for shares including Gamestop, Bed Bath & Beyond, AMC Entertainment, Blackberry, and others, Robinhood and TD Ameritrade restricted trading on Tuesday and Wednesday.
In a recent press release, Robinhood stated that it was going to “restrict transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG” while “raising margin requirements for certain securities.”
The stock symbols in the Robinhood press release represented Game Stop, Blackberry, Bed Bath and Beyond, AMC Entertainment, American Airlines, Castor Maritime, Koss headphone maker, Naked Brand Group intimate clothing manufacturer, Sundial Growers cannabis manufacturer, Nokia mobile phones, Trivago travel company, and Tootsie Roll.
Share prices for these particular stocks hit an all-time high this week as many retail investors piled money into these stocks. A fair amount of the hype came from WallStreetBets, the online Reddit forum. Robinhood and Interactive Brokers put limits on trading particular stocks as the madness continued into Wednesday.
Since the beginning of the year, shares from GameStop Corp. increased more than 1,900%, a big kick in the shins for market short-sellers. According to S3 Partners, Gamestop short-sellers had decreased more than $5 billion in 2021.
Cabeceiras, who described his client as a “hardworking, blue-collar tradesman who invested on the side to earn extra income,” said that he thinks the decision from Robinhood to restrict specific transactions is a “breach of Robinhood’s fiduciary duty and contractual obligations to the millions of retail investors who relied on their platform.”
The Illinois lawsuit states the Richard Gatz, the plaintiff and long-time Robinhood user, was the owner of two Blackberry options contracts when trading came to a halt. The options’ value decreased by nearly 200% for Blackberry and the price of the stock fell $10 from the prior days.
“If the stocks are not allowed to be trading, it is likely that Plaintiff will take a financial loss solely due to the Defendant’s behavior and manipulation of their trading platform. The Defendant has on information and belief continued to allow investment in these securities by institutional investors who have benefited from the stoppage of retail investment.”
The majority of Wall Street feels pessimistic about Game Stop holding onto its gains for long. Analysts say that it is very unlikely the company will make enough money in the near future to justify a $22.2 billion market evaluation.
