After restricting stock purchases promoted on the web forum Reddit, the stock trading app Robinhood was hit with a class-action lawsuit Thursday that alleged the platform blocked users from purchasing the GameStop (GME) stock.
Filed by Massachusetts resident Brandon Nelson, the federal suit claimed Robinhood intentionally removed GME from its platform, thereby preventing retail investors from operating within the open-market and “manipulating the open-market.”
The suit comes after the Reddit users from the /r/wallstreetbets page, in conjunction with Robinhood users, caused the price of several typically inexpensive stocks to skyrocket after becoming aware of hedge-funds “shorting” the stocks, or gambling that the stocks would fail.
“On or about January 27, 2021 Robinhood, in order to slow the growth of GME deprived their customers of the ability to use their service, abruptly, purposefully, willfully, and knowingly pulled GME from their app,” the suit states.
“Meaning, retail investors could no longer buy or even search for GME on Robinhood’s app,” it adds.
According to the suit, Robinhood has pulled several securities from the app “for no legitimate reason” other than to “slow growth and help benefit individuals and institutions who are not Robinhood customers but are Robinhood large institutional investors or potential investors.”
The suit further alleged that the actions taken by Robinhood violated the Financial Industry Regulatory Authority, which requires that brokers “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,” the suit states.
The suit is requesting immediate reinstatement of GME on the trading app.
Nelson filed on behalf of all Robinhood customers within the United States, in addition to all Robinhood customers in the U.S. who could not conduct GME trades as a result of Robinhood’s actions.
Robinhood released a statement early Thursday, claiming the restrictions were implemented “in light of recent volatility.”
“We’re committed to helping our customers navigate this uncertainty. We fundamentally believe that everyone should have access to financial markets. We’re humbled to have helped many people invest in the markets for the first time. And we’re determined to provide new and experienced investors with the tools and resources to help them invest responsibly for their long-term financial futures,” the statement read.
A number of hedge-funds reportedly lost billions of dollars due to the Reddit Robinhood traders.