Robinhood Hit With Lawsuit for Halting GameStop Stock Trading
Recently, day traders in the WallStreetBets SubReddit group came together to drive up GameStop's stock price after realizing that large investment companies had targeted GameStop for short-selling. This action caused the GameStop stock to rise rapidly, hitting over $300 when it was selling at under $5 just last year.
However, this trading has stirred the hornet nest, costing billionaires and investment companies billions of dollars in just a few short days. In response, the popular stock trading app "Robinhood" put a restriction on buying stock within GameStop, AMC, and other target companies to combat the steep rise in stock prices.
The WallStreetBets community has since responded to the action in force, and Robinhood has been hit with a class-action lawsuit by the United States District Court Southern District of New York. The suit claims that Robinhood has gone against the regulations set up by the Financial Industry Regulatory Authority's "Best Execution and Interpositioning Rule," which requires the company to make efforts to execute customer orders. In summary, the lawsuit is being filed because Robinhood knowingly removed GME stock from its platform to prevent retail investors from the capability to participate in the open market.
This, in turn, goes against the companies mantra of "Let the people trade" by blocking access to millions of people who lost out on potential profits from investing in GME and other companies. These sort of responses has been met with criticism from politicians from both sides of the political spectrum. Both Republican Senator Ted Cruz and Democratic Representative Alexandria Ocasio-Cortez have commented on the stock situation, claiming that these actions are rigged and unjust.
The lawsuit goes into further detail by explaining that Robinhood's actions were purposeful to manipulate the market for the benefit of financial institutions that were not a part of Robinhood's customer base. Robinhood is not the only company to attempt to silence the people; The Wall Street Bets SubReddit was temporarily taken down by its admins due to the flood of new visitors. Also, the Wall Street Bets discord group has been banned from the platform for "hate speech."
At the end of the lawsuit, the plaintiff is requesting Robinhood to put GME back on its app immediately and to award financial compensation for punitive damages to the defendants. Since the lawsuit happened today, there is no word on Robinhood's response or what will happen moving forward. For now, it will be interesting to see if Robinhood will live up to the name of the company and help the people, or fall victim to big corporations.
Source: UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
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