Robinhood, the online brokerage firm known for its stock trading app, now faces over 30 lawsuits in 10 states related to the brokerage firm’s GameStop stock freeze last week. Members of the /r/WallStreetBets subreddit helped propel the stock values of multiple “meme stocks,” including AMC, Bed Bath & Beyond, BlackBerry, GameStop, and Nokia, garnering massive media attention. Amidst the unprecedented surge, Robinhood abruptly froze trading on several of these stocks in a “risk-management decision.” A number of the lawsuits filed against Robinhood allege market manipulation.
Robinhood CEO Vlad Tenev spoke to multiple media outlets on Thursday, January 28, 2021, to clarify why Robinhood limited buying in the volatile “meme stocks.” Tenev denied the freeze was related to a liquidity issue. However, Robinhood published a blog post the following day, explaining that “the required amount [Robinhood] had to deposit with the clearinghouse was so large – with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements – that [Robinhood] had to take steps to limit buying” to ensure that Robinhood could meet said requirements.
The first class action lawsuit against Robinhood was filed by Brendon Nelson on Thursday, January 28, 2021, in the United States District Court, Southern District of New York. Nelson’s lawsuit alleges that “Robinhood is pulling securities. . . from its platform in order to slow growth and help benefit individuals and institutions who are not Robinhood customers but are Robinhood large institutional investors or potential investors.” Nelson and other users found themselves unable to search, let alone purchase, GameStop shares on the morning of January 28th. Nelson’s complaint specifically alleges causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, and breach of fiduciary duty.
Robinhood’s freeze of the “meme stocks” drew the attention of lawmakers on both sides of the aisle. Tenev is expected to appear before the House Financial Services Committee on February 18, 2021, to testify on Robinhood’s behalf.
Robinhood is facing dozens of lawsuits over GameStop stock freeze, The Verge (February 1, 2021)
An Update on Market Volatility, Robinhood (January 28, 2021)
What happened this week, Robinhood (January 29, 2021)
Nelson v. Robinhood Financial LLC et al (Case No. 1:2021cv00777)
Photo Credit: rafapress / Shutterstock.com