Earlier this month an online Reddit community known as wallstreetbets banded together to purchase stocks that elite hedge funds had bet against.
Their collective action caused GameStop stock to skyrocket from $17 on January 1 to an incredible $469 on January 28.
The community’s actions will likely result in a tremendous loss for the hedge funds that bet against the stock.
Much of the trading done by wallstreetbets was facilitated by an online brokerage firm called Robinhood.
A few days ago Robinhood inexplicably froze trading on GameStop stock.
This action immediately prompted a class-action lawsuit against Robinhood and its subsidiaries in US District Court for the Southern District of New York.
According to the complaint:
On or around January 11, 2021, stocks in GameStop Corp. (“GME”) began to rise.
At that time, Robinhood allowed retail investors to trade GME on the open market.
On or about January 27, 2021 Robinhood, in order to slow the growth of GME and deprived their customers of the ability to use their service, abruptly, purposefully, willfully, and knowingly pulled GME from their app. Meaning, retail investors could no longer buy or even search for GME on Robinhood’s app.
Upon information and belief, Robinhood’s actions were done purposefully and
knowingly to manipulate the market for the benefit of people and financial intuitions who were not Robinhood’s customers.
Since pulling the stock from their app, GME prices have gone up, depriving investors of
Additionally, in the event GME goes down, Robinhood has deprived investors of
“shorting” GME in the hopes the price drops.
In sum, Robinhood has completely blocked retailer investors from purchasing GME for no legitimate reason, thereby depriving retailer investors from the benefits of Robinhood’s services.
The complaint argues that Robinhood violated rules established by the Financial Industry Regulatory Authority, particularly Rule 5310 which states that brokerage firms like Robinhood “must make every effort to execute a marketable customer order that it receives promptly and fully.”
The plaintiffs allege that Robinhood’s actions constitute (1) a breach of contract, (2) a breach of the implied covenants of good faith and fair dealing, (3) a breach of fiduciary duty, and (4) negligence.
They are asking the court for an immediate injunction ordering Robinhood to allow trading of GameStop stock and monetary and punitive damages for the financial harm Robinhood has allegedly done to its customers.