Robinhood can now add a class action lawsuit to its growing list of headaches after it said it would restrict users from trading GameStop and other stocks. A class action lawsuit was filed in New York Thursday, alleging that Robinhood "deprived their customers of the ability to use their service," in an effort "to manipulate the market for the benefit of people and financial intuitions." The lawsuit comes hours after Robinhood informed users that it would restrict a handful of stocks, including GameStop, Blackberry, AMC, and American Airlines, due to "recent volatility." The company also said it would raise margin requirements for some securities. "We continuously monitor the markets and make changes where necessary," Robinhood said.
Angry internet users have filed over 30 class-action lawsuits against Robinhood for restricting stock buys on the app. The lawsuits have been piling up in the PACER court database days after Robinhood stopped stock buys for GameStop and seven other companies. On Tuesday, PCMag counted 34 civil complaints against the company. A Massachusetts-based man named Brendon Nelson was the first to file a class-action lawsuit against Robinhood, demanding it pay up in damages for depriving users of the chance to buy GameStop stock. Since then, dozens of users across the U.S. have filed similar complaints.
The GameStop stock trading saga prompted a rare instance of bipartisan synergy on Capitol Hill this week as lawmakers asserted that Wall Street hedge funds were being held to a different standard than ordinary Americans. Much of the outrage stemmed from decisions by Robinhood and other mobile brokerage platforms to restrict transactions involving GameStock and other stocks favored by retail investors. While the platforms argued their decisions were an attempt to mitigate risk amid unprecedented volatility, critics suggested the restrictions could have been imposed to protect hedge funds that held short positions on the popular stocks. Robinhood and other platforms have denied the allegations. Politicians on both sides of the political aisle have called for congressional hearings and regulatory reviews to examine the actions of Robinhood and other platforms for potential wrongdoing.
The online brokerage Robinhood launched in 2013 with an egalitarian pitch worthy of its namesake: commission-free trading on a platform that has the common investor's interests at heart. That veneer has shown cracks over the years, but perhaps none so visible as this morning, when Robinhood users found themselves unable to purchase the so-called meme stocks, like GameStop and AMC, that the WallStreetBets community on Reddit had recently sent soaring. You could still sell those stocks--most of which still rank among the most widely held on the platform, according to the Robinhood app's frequently updated "Most Popular" list--but otherwise? And while experts say that Robinhood was within its legal and regulatory rights to shut down the stonks party, its users are up in arms. Understanding Thursday's fracas requires a brief history of why GameStop shot up 1,700 percent this month.
One of the more overused adages about business on the internet is that "if you aren't paying, you are the product." It's always been true, but it's become acute lately. Microsoft, Apple, and Amazon mostly sell you things like phones, computers, web-hosting services, and Instant Pots. On the other hand, Google, Facebook, and Visa largely sell you. You don't need to pay for a Visa card, but Visa sells its cardholders to companies all over the world.