Popular U.S. stock trading app Robinhood was hit with a class-action lawsuit on Thursday on charges of “manipulating the free market,” following restrictions it imposed today on its platform on GameStop shares, which have soared in recent days thanks to coordinated small investors on social media.
A user of the app filed in a New York court a class action lawsuit alleging that Robinhood “purposely, willfully and knowingly removed GME stock from its platform in the midst of an unprecedented rise in value, thereby depriving investors of the ability to invest in the free market and manipulating the free market.”
According to the court document, which estimates that those affected by the measure may be “thousands” of users among the platform’s nearly 10 million users, following the “abrupt” blocking of GameStop’s shopping and searching its stock market value has risen, preventing them from achieving “potential gains.”
The whistleblower alleges that the app has taken the action “to manipulate the market for the benefit of individuals and financial institutions that are not customers” and points out that, in the event that the shares of that particular firm fall, users do not have the ability to position themselves “short” to hedge their bets or profit.
Robinhood and other commission-free brokerage apps in the U.S., such as TD Ameritrade, decided today to restrict the stock trades they allow on a group of stocks after thousands of retail investors, coordinated on a Reddit forum called “Wall Street Bets,” pushed up their share prices and caused heavy losses to funds that bet down on those businesses.
GameStop, which this week alone soared 400%, was down 34% on Wall Street this afternoon, as were other volatile names such as AMC (-51%), BlackBerry (-35%), Nokia (-13%), Express (-50%) and Koss (-31%), all with the common denominator of having been blocked by Robinhood.
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The lawsuit accuses the financial app of negligence, breach of contract and breach of fiduciary duty, among other things.
Meanwhile, Robinhood has released a statement assuring that the decision is temporary, that “it was not easy” and that it was taken to perform “better” service.
The firm assured that it must comply with certain requirements “to protect investors and the markets” and added that they take their “responsibility to meet them seriously, including through the measures we have taken today.” In a clear attempt to benefit Wall Street investors who lost millions after betting short against these companies.
A month ago, the Securities and Exchange Commission charged Robinhood with deceptive behavior, alleging that despite claiming to be “commission-free” it executed trades below the brokerage price at which it made a profit, and although it neither admitted nor denied the charges, they agreed to pay a $65 million fine.