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Robinhood app facing class action after blocking purchases of GameStop stock

Robinhood app facing class action after blocking purchases of GameStop stock

30.01.2021 | Chris Stephens | U. Pittsburgh School of Law, US JANUARY 29, 2021 01:57:24 PM | 658

A class-action lawsuit was filed against Robinhood Thursday after the company barred purchases of GameStop securities (GME) throughout the entire day trading period.

The complaint requests an award for damages and an injunction to immediately remove restrictions on purchases. It states, “Robinhood purposefully, willfully, and knowingly [removed] the stock ‘GME’ from its trading platform in the midst of an unprecedented stock rise.”

The stock picked up attention over the past month as Reddit users noticed a significant percentage of the stock was being “sold short,” a trading strategy where investors profit when the stock price declines, and correspondingly, lose money when the price increases.

GME subsequently grew in value, closing at $347.51 per share Wednesday afternoon. Just three weeks prior, investors could buy the stock for under $19 per share.

On Thursday morning, Robinhood announced its users could no longer purchase GME along with a few other retail stocks popular among short-sellers. Robinhood’s CEO defended the decision as necessary to comport with Securities and Exchange Commission requirements, though critics claim the decision was motivated to protect high-profile investors and hedge funds from losing money during GME’s dramatic rise.

The lawsuit contends that prohibiting the purchase of GME had no legitimate basis, and it came at the expense of users who had been investing in retail stocks.

Robinhood sent an email Thursday evening to users that purchases of the stock may resume Friday morning, but the company will continue to monitor activity surrounding the stock. It is unclear how the shift in policy will impact the lawsuit, particularly the requested injunction.

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