Robinhood Has Faced 33 Lawsuits Since GameStop Buying Freeze

Online brokerage firm Robinhood has faced an influx of litigation after it temporarily prevented its users from transacting with retailer GameStop’s stock (GME). This came after Wall Street funds attempted to short the stock, after which users of social media platform Reddit decided to buy the GME stock. This dramatically increased the price of stock, going from $4 in early to mid-December to $40 in the middle to end of January to as high as $350. In an effort to manage the situation, Robinhood temporarily restricted certain volatile stocks, including GameStop, AMC Entertainment Holdings, Express, Koss, Nokia, and Blackberry on Jan. 28, 2021.

On Jan. 28, 2021, a Robinhood user filed the first lawsuit against Robinhood, alleging that it prevented users from buying GameStop’s stock “in the midst of an unprecedented stock rise,” allegedly “depriv(ing) retail investors of the ability to invest in the open-market and manipulating the open-market.” The plaintiff claimed that this was designed to manipulate the market. However, other trading platforms, including TD Ameritrade and Ally Financial, have been sued alongside Robinhood over the incident.

Since the first lawsuit was filed to the time of publication for this article, Robinhood has faced a total of 33 federal lawsuits, the majority of which asserting securities violations, breach of contract, antitrust, and fraud. The majority of the lawsuits were filed in the Central District of California and Northern District of California, but others have been filed across the country.  

In a Jan. 28 blog post, Robinhood stated, “We continuously monitor the markets and make changes where necessary. In light of recent volatility, we restricted transactions for certain securities to position closing only.”

Meanwhile, Rep. Alexandria Ocasio-Cortez (D-N.Y.) tweeted Jan. 28, “This is unacceptable. We 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.” She added that she would support a hearing on the matter. 

On Jan. 29, 2021, the Securities and Exchange Commission (SEC) issued a statement on the recent market volatility, noting that it is “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days. Our core market infrastructure has proven resilient under the weight of this week’s extraordinary trading volumes. Nevertheless, extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence.”

As of now, Robinhood does not have any temporary trading restrictions. CNBC noted that GME stock shares increased by more than 40% after Robinhood lifted its trading restrictions.

The House Financial Services Committee announced that it is set to hold a hearing on Feb. 18 about the market volatility around GameStop and other stocks.