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As of Monday morning, at least five class action lawsuits have been filed against the Robinhood app, TD Ameritrade and Charles Schwab amid the Reddit-inspired market chaos.
Investors in GameStop wasted little time before taking legal action against the brokers for removing the retailer’s stock from trading platforms.
The complaints started flying when Robinhood traders were blocked Thursday from buying GameStop and other company stock in an attempt to calm volatility surrounding its prices.
Other brokers like TD Ameritrade and Charles Schwab followed in blocking certain trades.
The markets were still open when the first class action lawsuit hit. Federal court clerks were processing more complaints by Friday.
Multiple State Response
Plaintiffs in California, Illinois, Texas and New York are accusing the brokers of illegally favoring wealthy hedge funds and breaching contracts with its users.
Financial services app Robinhood, along with brokers TD Ameritrade and Charles Schwab are being sued by customers not only for their inability to buy GameStop, but also a variety of other shorted companies whipped into the buying frenzy, including AMC Entertainment and Nokia.
An Illinois attorney’s lawsuit claims his options contracts for Blackberry dropped 200 percent because of the Robinhood block, the Chicago Tribune reports.
One of the class action lawsuits out of California District court was filed by Kansan Robert Days. He says Robinhood barred its traders from buying and selling GameStop in order to help major hedge funds from losing money.
A complaint filed Friday out of Dallas District Court includes not only the brokers, but also the hedge fund traders.
The three named plaintiffs in that case say Melvin Capital Management and Citadel LLC are just as guilty of fraud, negligence and failing to meet fiduciary responsibilities as the brokers.
The Short Sell and The Squeeze
Institutional hedge funds were largely betting on these companies to drop in value. Reports show Gamestop’s short interest at the beginning of the year spiked to 145 percent.
In his complaint, Days alleges Robinhood and their partner, Apex, have no justification blocking these trades except to help Wall Street at the average investor’s expense.
“Ironically, this action was to the benefit of hedge funds that hold short positions in these stocks. In other words, Robinhood (and Apex) stole from the poor to give to the rich,” Days said in the complaint.
Robinhood’s blocking of trades allegedly left Days with two choices: either sell or hold, according to the complaint, further contending that Robinhood has an interest in maintaining their relationships with institutional investors.
“Robinhood and Apex caved to those pressures in making the decision to bar trading of GME, AMC, NOK, and other similarly-situated stocks,” Days said in the complaint.
These institutional investors hold short positions on GameStop, the complaint alleges, and lose money if the stock price rises. By blocking trades Robinhood “artificially deflated” the price, to the benefit of those shorting the stock.
A Call For Accountability
Retail investors aren’t the only one looking for accountability from Robinhood. Lawmakers in Congress from both sides blasted the move Thursday on social media.
New York’s Attorney General tweeted Thursday her offices were reviewing the matter.
The Securities and Exchange Commission weighed in Friday in a statement published on its website promising an investigation.
“We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws,” the acting SEC commissioners said.
GameStop stock plunged 44 percent Thursday following Robinhood’s trade blocking, according to Bloomberg.
Robinhood has since opened trading on these shorted stocks like GameStop on a limited basis as of Friday.
GameStop’s stock price was up 83 percent as of Friday morning.
Currently, as of Monday morning, GameStop stock is down about 25 percent.
Robinhood has grown to include more than 13 million users, the complaint states, and brings in hundreds of millions of dollars in investments.
Do you invest with Robinhood? What do you think of Robinhood investor class action lawsuits? Let us know in the comments below.
Robert Days is represented by Matthew L. Venezia of Browne George Ross O’brien Annaguey & Ellis LLP.
The Robinhood Investor Lawsuits are:
Days v. Robinhood Markets, Inc., et al., Case No. 3:21-cv-00696 in the U.S. District Court Northern District Of California, San Francisco Division.
Nelson v. Robinhood Financial LLC, et al., Case No. 1:21-cv-00777, in the U.S. District Court Southern District of New York.
Gatz, et al. v. Robinhood Financial, LLC, Case No. 1:21-cv-00490, in the U.S. District Court for the Northern District of Illinois, Eastern Division.
Nabi, et al. v. Robinhood Financial, LLC, Case No. 3:21-cv-00755 in the U.S. District Court Northern District Of California.
Simpson, et al. v. Robinhood Financial LLC, et al., Case No. 3:21-cv-00207 in the United States District Court Northern District of Texas, Dallas Division
Read About More Class Action Lawsuits & Class Action Settlements:
440 thoughts onRobinhood Draws Multiple Class Actions Over GameStop Frenzy
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Robinhood blocked me from buying stock also ,claiming my ID was the reason.