The Robinhood stock trading app is facing dozens of lawsuits after the company restricted several stocks that were popular in the r / WallStreetBets subreddit. At least thirty parties in ten states have sued the company in federal court, and many of them are seeking class-action status. They allege that Robinhood users lost millions of dollars because they were unable to buy or sell shares during the freezing point, and that the company chose to ‘manipulate the market’ to help other financial institutions.
Robinhood, which sees itself as a democratizing force in the stock market, helped ease an unprecedented surge around a handful of “meme stocks” last month. But on January 28, it angered users by freezing transactions on several of these shares. These included GameStop ($ GME) as well as AMC ($ AMC), BlackBerry ($ BB), Bed Bath & Beyond ($ BBBY) and Nokia ($ NOK). The company defends the move in a blog post, calling it a ‘risk management decision’ taken under ‘extraordinary circumstances’. The company denied reports that it had sold the shares of some users without permission.
The answer did not satisfy users. Robinhood user Brendon Nelson sued New York State the first day, accusing the company of negligence and breach of contract with dealers. More cases followed, spreading across courts in New Jersey, California, Texas, Florida and other states. Some plaintiffs simply complain that they are missing out on a potential windfall, but others are demanding more specific damages: Patryk Krasowski of Illinois, for example, claims that he lost $ 220,000 because Robinhood would not allow him to exercise GameStop call options.
‘Robinhood completely barred retail investors from buying [GameStop stock] for no legitimate reason, ”reads Nelson’s complaint. He alleges that Robinhood ‘could not provide sufficient explanation’ about obtaining a lucrative share of its platform and ‘knowingly harmed their customers compared to customers who used other trading programs.’ Robinhood has lifted the freezing point for GameStop and other stocks, but it maintains strict trading restrictions for users.
Nelson requested that courts force Robinhood to regain access to GameStop shares, except that they pay financial damages to Robinhood users who were unable to export GameStop shares. Other parties have made similar pleas, and several are seeking status of class action. Some charges were also brought against other institutions, including financial services companies Citadel Securities and Apex Clearing, which worked with Robinhood to trade.
The cases were only filed a few days ago and will probably only be heard before the GameStop stock bubble has deflated. While a Washington judge did it last week ratified a class action lawsuit against Robinhood, the case dates back to 2019 and relates to the app’s “refer a friend” app. As MarketWatch note, any lawsuit can also be stimulated by Robinhood’s arbitration clause – a portion of the user agreement that demands that conflict be resolved out of court.
However, dissatisfied users are not the only threat to Robinhood. The company’s decision caused double condemnation by lawmakers, with Representative Alexandria Ocasio-Cortez (D-NY) and others seeking to investigate the company’s decision. And CEO Vlad Tenev is expected to testify at the February 18 hearing before the House Financial Services Committee.