A class action lawsuit alleges that Robinhood “deprived their customers of the ability to use their service, abruptly, purposefully, willfully, and knowingly pulled GME from their app.”
After major tumult in the Wall Street market on Tuesday and Wednesday this week, which results in billions of dollars in losses for some Wall Street firms engaged in the practice of short selling stocks, and some short term gains for amateur investors in a 2 million person plus forum on Reddit, a class action lawsuit has been filed against trading app Robinhood.
Robinhood halted trading for the affected stocks instead of allow free trading to continue.
Filed in the Southern District of New York, the suit alleges that Robinhood, which halted trading for the affected stocks of GameStop, AMC Entertainment, and others that were targeted by r/WallStreetBets, "purposefully, willfully, and knowingly removed the stock 'GME' [GameStop] from its trading platform in the midst of an unprecedented stock rise thereby deprived retail investors of the ability to invest in the open-mark and manipulating the open market."
The allegations in the suit continue:
"Robinhood is an online brokerage firm. Its customers place securities trades through the firm’s website, by using a web-based application (or “app”). Robinhood permits customers to purchase and sell securities, including futures contracts.
"Robinhood has experienced significant growth as a relatively new online brokerage firm. In 2019, Robinhood raised $323 million in funding at a $7.6 billion valuation. The firm markets itself primarily to younger investors and claims over 10 million users of its trading app.
"On or about March 23, 2016, Robinhood's official Twitter account stated: 'Let the people trade.' They have since disregarded their mantra and have blocked access for millions of its customers to trade particular securities.
"On or around January 11, 2021, stocks in GameStop Corp. (“GME”) began to rise.
"At that time, Robinhood allowed retail investors to trade GME on the open market.
"On or about January 27, 2021 Robinhood, in order to slow the growth of GME and deprived their customers of the ability to use their service, abruptly, purposefully, willfully, and knowingly pulled GME from their app. Meaning, retail investors could no longer buy or even search for GME on Robinhood’s app.
"Upon information and belief, Robinhood’s actions were done purposefully and knowingly to manipulate the market for the benefit of people and financial intuitions who were not Robinhood’s customers.
"Since pulling the stock from their app, GME prices have gone up, depriving investors of potential gains.
"Additionally, in the event GME goes down, Robinhood has deprived investors of 'shorting' GME in the hopes the price drops.
"In sum, Robinhood has completely blocked retailer investors from purchasing GME for no legitimate reason, thereby depriving retailer investors from the benefits of Robinhood’s services.
"The Financial Industry Regulatory Authority (“FINRA”), which governs brokers like Robinhood, espouses rule 5310 regarding “Best Execution and Interpositioning.” Rule 5310.01 requires that Robinhood “must make every effort to execute a marketable customer order that it receives promptly and fully.” By failing to respond at all to customers’ placing timely trades—and outright blocking customers from trading a security—Robinhood has breached these, among other, obligations and caused its customers substantial losses due solely to its own negligence and failure to maintain adequate infrastructure.
"Robinhood continues to randomly pull other securities from its app for no legitimate reason.
"Upon information and belief, Robinhood is pulling securities like GME 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."
Libby’s Desk
Commentary and must-reads from Libby’s desk, straight to your inbox.
TPM Newsletter
The Post Millennial’s top stories, delivered to your inbox.
