“Robinhood’s actions were done on purpose and knowingly to manipulate the market for the benefit of people and financial institutions that were not Robinhood’s customers,” says the action.
The lawsuit says Robinhood’s decision deprived retail investors of the potential gains they could have made by buying when stocks were down and selling when their price went up.
GameStop’s stock has skyrocketed since January 11, after it hired several new board members that investors believed could help the stock boost its digital sales. Reddit’s WallStreetBets group started promoting the stock, causing it to skyrocket by more than 1,000% in recent weeks.
Rising stocks forced short sellers who were betting against stocks to buy stocks to protect their positions, causing stocks to skyrocket further.
Many day traders took advantage of Robinhood’s free trades, betting on GameStop and other actions promoted by the Reddit group. But these customers are playing a dangerous game. Corporate fundamentals do not support these high stock prices, and the bubble could burst, eliminating traders who had placed large bets on GameStop and the like.
“We are committed to helping our customers overcome this uncertainty,” the company said in a statement. “We fundamentally believe that everyone should have access to the financial markets.”
Redditors unite
The company collected information from more than 6,000 people while investigating Robinhood, lawyer Philip Vujanov told CNN.
“This is quite unprecedented, I have never heard of another scenario like this,” Vujanov told CNN in a telephone interview. “There will be a lot of people holding the bag.”
Vujanov specifically called Robinhood’s actions today “hypocrites”, while quoting a tweet from Robinhood’s official Twitter account in March 2016 that said, “Let the people negotiate.”
“Now, suddenly, they are changing positions,” said Vujanov of Robinhood.
“It sounds a little silly. The r / wallstreetbets people were buying GameStop and playing a Jenga game, but it is the same game that hedge funds have been playing for decades and decades,” said Kardatzke. “It’s a little ridiculous.”
That sentiment echoed on Capitol Hill, where Democratic MP Alexandria Ocasio-Cortez and Republican Senator Ted Cruz were among a group of lawmakers to punish Robinhood’s decision.
“Now we need to know more about @RobinhoodApp’s decision to prevent retail investors from buying shares while hedge funds can freely trade the shares however they want,” tweeted Ocasio-Cortez.
In a subsequent tweet, Ocasio-Cortez said he will be on Twitch tonight to discuss GameStop and today’s developments.
Brian Fung, Alexis Benveniste and Matt Egan of CNN contributed to this report.