The stock trading app Robinhood is facing dozens of lawsuits after the company restricted several popular stocks on the subreddit r / WallStreetBets. At least 30 parties in 10 states have sued the company in federal court, many seeking class action status. They claim that Robinhood users lost millions of dollars because they were unable to buy or sell shares during the freeze, and that the company chose to “manipulate the market” to help other financial institutions.
Robinhood, which presents itself as a democratizing force in the stock market, helped facilitate an unprecedented boom around a handful of “meme actions” last month. But on January 28, it infuriated users by freezing negotiations on several of these actions. This included GameStop ($ GME), as well as AMC ($ AMC), BlackBerry ($ BB), Bed Bath & Beyond ($ BBBY) and Nokia ($ NOK). The company defended the move in a blog post, calling it a “risk management decision” made in the face of “extraordinary circumstances”. The company denied reports that it sold shares of some users without permission.
The answer did not satisfy users. Robinhood user Brendon Nelson filed the first lawsuit in New York state that day, accusing the company of negligence and breach of contract with traders. More lawsuits followed, spread through courts in New Jersey, California, Texas, Florida and other states. Some plaintiffs simply complain about the loss of a potential gain, but others have more specific damages: Patryk Krasowski, from Illinois, for example, claims that he lost $ 220,000 because Robinhood did not let him exercise GameStop’s call options.
“Robinhood has completely blocked the purchase of retail investors [GameStop stock] without legitimate reason ”, says Nelson’s complaint. He says Robinhood “failed to provide a proper explanation” about removing profitable stock from his platform and “knowingly put his customers at a disadvantage compared to customers who used other trading apps.” Robinhood has lifted the blanket freeze on GameStop and other stocks, but has maintained strict trading limits for users.
Nelson requested that the courts compel Robinhood to restore full access to GameStop stock trading, in addition to paying financial damages to any Robinhood user who was unable to trade GameStop shares. Other parties have made similar appeals and several are seeking collective action status. Some lawsuits also targeted other institutions, including financial services companies Citadel Securities and Apex Clearing, which worked with Robinhood to execute negotiations.
The cases were only opened a few days ago and may not be heard until the GameStop stock bubble clears. While a Washington judge made certified a class action lawsuit against Robinhood last week, the case dates back to 2019 and concerned the app’s “refer a friend” program. Like Market Watch notes, any lawsuit can also be blocked by Robinhood’s arbitration clause – a section of the user contract that requires conflicts to be resolved out of court.
However, dissatisfied users are not the only threat to Robinhood. The company’s decision drew bipartisan condemnation from lawmakers, with Congressman Alexandria Ocasio-Cortez (D-NY) and others calling to investigate the company’s decision. And CEO Vlad Tenev is expected to testify at a February 18 hearing before the House’s Financial Services Committee.