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Robinhood hit with class action lawsuit after it restricts GameStop stock

Members of Congress have also questioned the company's actions.
SAN ANSELMO, CALIFORNIA - DECEMBER 17: In this photo illustration, the Robinhood logo is displayed on an iPhone on December 17, 2020 in San Anselmo, California. The Securities and Exchange Commission has charged Silicon Valley start-up company Robinhood with deceiving customers about how the company makes money. The company has agreed to pay a $65 million civil penalty. (Photo Illustration by Justin Sullivan/Getty Images)
Justin Sullivan via Getty Images
Karissa Bell
Karissa Bell|@karissabe|January 28, 2021 2:17 PM

Robinhood can now add a class action lawsuit to its growing list of headaches after it said it would restrict users from trading GameStop and other stocks. A class action lawsuit was filed in New York Thursday, alleging that Robinhood “deprived their customers of the ability to use their service,” in an effort “to manipulate the market for the benefit of people and financial intuitions.”

The lawsuit comes hours after Robinhood informed users that it would restrict a handful of stocks, including GameStop, Blackberry, AMC, and American Airlines, due to “recent volatility.” The company also said it would raise margin requirements for some securities. “We continuously monitor the markets and make changes where necessary,” Robinhood said.

A spokesperson for Robinhood declined to comment.

Robinhood isn’t the only firm to restrict trading on GameStop. Interactive Brokers, Webull, and TD Ameritrade have imposed similar restrictions. But Robinhood has drawn the most ire, likely due to its popularity among the Reddit day traders who fueled the unprecedented rise of GameStop to begin with. According to Motherboard, 56 percent of all Robinhood users own GameStop stock that they are now unable to trade (Correction: this statistic is inaccurate), prompting accusations that the company is working to protect large financial institutions rather than small-time investors.  

It also caught the attention of several members of Congress, who questioned the move. New York Rep. Alexandria Ocasio-Cortez, who sits on the House Financial Services Committee, said she would “support a hearing if necessary.” 

It wouldn’t be the first time Robinhood has gotten in hot water. The company previously paid a $65 million fine for misleading users about its revenue sources. It’s also faced questions about whether it does enough to educate young users about the potential risks of day trading.

Robinhood hit with class action lawsuit after it restricts GameStop stock