Robinhood faces 'multiple lawsuits' for blocking GameStop and AMC ‘Reddit rally’ trading as companies’ shares plummet
ROBINHOOD is facing 'multiple lawsuits' for blocking GameStop and AMC "Reddit rally" trading as companies' shares plummet.
A pair of federal lawsuits were filed on Thursday, blaming the trading platform for alleged market manipulation, Law and Crime reported.
The first suit was filed by user Brendon Nelson in the Southern District of New York, alleging that the app engaged in unlawful market manipulation, the outlet reported.
The second was filed by user Richard Joseph Gatz in the Northern District of Illinois, accusing the platform of protecting “institutional investment at the detriment of retail customers.”
The news comes just hours after Robinhood removed GameStop, AMC and other stocks that are part of the "Reddit Rally" from its app.
Several users then reported problems with the platform after the investment company clamped down on the stocks claiming they were too volatile following huge price swings pushed by a Reddit group.
Users were told they could close out their position, but could not buy any more stock.
The price of AMC tumbled on Thursday morning, but GameStop continued to climb.
RobinHood said in a statement: “We continuously monitor the markets and make changes where necessary,” read a statement on the company’s website posted Thursday morning. “In light of recent volatility, we are restricting transactions for certain securities to position closing only.”
The move led to an immediate backlash again the trading app.
"Guess the 'Free Market' is only free for Hedgefund managers huh," said one user.
"You won't recover from this. You just killed your brand," posted another.
"This will go down as the worst financial decision ever made by a brokerage. RIP, enjoy the class action suit," said another tweeter.
In recent days Reddit users managed to send shares for retailer GameStop skyrocketing in a move that left major hedge funds reeling from billions of dollars in losses.
How to invest using the Robinhood app
- Navigate to the stock’s detail page. Here you can find the stock’s historical performance, analyst ratings, company earnings, and other helpful information when considering buying or selling a stock.
- At the bottom of the page, tap Trade and then Buy or just Buy, which will appear by default if you don’t currently own the stock.
- Enter the dollar amount you would like to purchase. If you’d like to order in shares, tap on the drop-down menu in the top right that says Dollars and choose Buy in Shares.
- Review your order and confirm that all the details are correct. If you’d like to edit your order, tap Edit in the top left.
- Swipe up to submit your order.
Users in a group called WallStreetBets came together to send GameStop's shares up a shocking 130 percent on Wednesday.
The struggling video game store's shares are up a total of 1,700 percent since the beginning of January, from $17.25 per share to $347.51.
The Wall Street trolls, apparently led by YouTube finance expert "Roaring Kitty," are driving up share prices by betting against Wall Street short-sellers.
Short-sellers, despised by many, are big hedge funds that bet on a decline by selling borrowed shares in the hope of repaying at a lower price.
WallStreetBets is a Reddit group with several million members who share trading tips about how to beat "the system," and users have been on a GameStop buying spree.
The influx in purchases has been putting pressure on short sellers to make purchases to avoid steeper losses.
GameStop's three largest investors have made $3billion since the stock prices began climbing, according to the Daily Mail.
Robinhood is an app popular among amateur stock traders, with hundreds of thousands of downloads across Apple and Google's app stores.
The platform, which also has a website, offers trading tools, stock tips and even a cryptocurrency exchange where users can invest in Bitcoin.
Robinhood was founded by Baiju Bhatt and Vlad Tenev, two children of immigrants who met at Stanford University in 2005.
They were inspired by the Occupy Wall Street protests to create an app that made the stock market more accessible.
Critics argue that Robinhood "gameifies" investing, using tactics employed by addictive gambling apps to encourage users to buy stock.
It sends frequent push notifications to users about their stock positions, and when they make their first trade, confetti "rains down" in the app.
In response, Robinhood has argued that the app’s features "are meant for informational purposes only, and are not intended to serve as a recommendation to buy or sell any security."
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