Summary List Placement
The stock-trading app Robinhood was hit with a lawsuit Thursday morning after it blocked purchases of GameStop, AMC, BlackBerry, and others, which left its users unable to buy the highly volatile stocks.
The complaint, which was filed as a class-action lawsuit in the Southern District of New York, alleged the online brokerage platform’s decision to block purchases of volatile stocks was done purposefully to “manipulate the market for the benefit of people and financial institutions who were not Robinhood’s customers.”
The plaintiff, the Robinhood user Brendon Nelson, said in the complaint that when he searched in the Robinhood app on Thursday morning for GameStop (GME), it did not appear, even though “GME is a publicly traded company available on all other platforms.”
He claimed he and other users lost out on earning opportunities as a result. The suit alleges the GME stock has gone up since Robinhood pulled it from its platform and that its removal deprived investors of opportunities to short the stock. He also alleged the removal was for “no legitimate reason.”
The stock had a volatile morning. It opened lower before rising more than 30% and then tumbling again. At the time of writing, the price was down about 31% at $238 per share.
The move by Robinhood came after days of frenzied trading on Wall Street as day traders united in Reddit forums like the r/wallstreetbets subreddit and frenetically bought the names to push their share prices higher. The phenomenon has already fueled massive losses for numerous hedge funds and caught the attention of regulators and the White House.
Before the markets opened Thursday, Robinhood blocked purchases of GameStop, AMC, BlackBerry, Bed Bath & Beyond, Express, Koss, Naked Brand, and Nokia. The firm informed clients they could close out positions in the affected stocks but not purchase additional shares, and it also lifted margin requirements for certain trades.
Robinhood’s move followed in the footsteps of firms like Charles Schwab and TD Ameritrade, which froze some trading activity Wednesday.
The complaint alleged Robinhood breached its fiduciary duty by failing to disclose to users in a timely manner that it was going to remove GameStop and other companies from its platform this morning and that the act itself of removing the companies was also a breach of fiduciary duty. The plaintiff asked the court for an immediate injunction to require Robinhood to put GME back on its platform and is seeking undetermined fees.
Representatives for Robinhood on Thursday afternoon declined to comment. Alexander Cabeceiras, a lawyer at New York’s Derek Smith Law Group who is representing Nelson, did not immediately respond to a request for comment.