After retail investors decided to play the game Wall Street has played for years, some online brokerage apps tried to take matters into their own hands. The popular stock trading app Robinhood blocked users from buying or trading stocks that became popular on social media platforms like Reddit after these stocks saw significant rises in the market. As a result, a class-action lawsuit has been filed against the app for “purposefully, willfully, and knowingly removing the stock ‘GME’ from its trading platform in the midst of an unprecedented stock rise, thereby deprived [sic] retail investors of the ability to invest in the open-market and manipulating the open-market.”
The block came Thursday after hedge fund investors lost millions and complained that share prices were driven by YOLO investors for stocks like GameStop, AMC, and Nokia. Earlier this week, users of r/WallStreetBets encouraged users to buy stocks of struggling companies to work together to drive up the prices traditional hedge funds had shorted. Through these efforts, the buying frenzy increased stock value for these companies by over 100%. But after Robinhood’s move Thursday, users could only close existing trades and purchasing new shares was disabled. As a result, values began to slide.
“We continuously monitor the markets and make changes where necessary,” the day-trading app wrote in a blog post. “In light of recent volatility, we are restricting transactions for certain securities to position closing only.”
According to the Daily Beast, Robinhood describes itself as “democratizing finance for all,” allowing users to buy and sell stocks without a commission fee. A spokesperson declined to comment on the lawsuit on Thursday. The lawsuit seeks reinstatement of GameStop (GME) trading to the platform, a class action fee for plaintiffs, attorney’s fees, and punitive damages.
“Robinhood appears to be up to the same old tricks, recruiting social media influencers to encourage individuals to sign up and fund a Robinhood account and beginning purchasing shares of securities such as GameStop and AMC, with no consideration as to the suitability of the purchases,” Chapman Albin attorney Philip Vujanov said in the statement. Chapman is representing individuals suffering losses as a result of investing in GameStop and AMC.
While other trading platforms like Charles Schwab and TD Ameritrade also restricted trading of popular shares, Robinhood’s move on Thursday garnered quick backlash, with Twitter users dragging the app and its action in favor of the rich. By restricting the number of shares individuals can buy, the app was favoring “market manipulation,” which disables people from buying fair shares.
Prior to the announcement of a class-action lawsuit being filed, lawmakers such as Rep. Alexandria Ocasio-Cortez also tweeted about the unjust actions apps like Robinhood were making and noted she would support a lawsuit.
“We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit,” Ocasio-Cortez said.
Democratic lawmakers weren’t the only ones to criticize the app. Surprisingly, some GOP officials like Ted Cruz also supported the cause.
Other lawsuits are in the works, including a second suit that was filed later Thursday in Illinois addressing stocks like Blackberry, Nokia, and AMC. The attorney representing plaintiffs in the first class-action suit, Alexander Cabeceiras, told CNBC News that “hundreds of individuals” are “reaching out to be added to this suit.”