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.”
Yes @aoc. We need an investigation into RobinhoodApp’s decision and who influenced that. And this shows the need for a financial transaction tax on hedge fund shorting and SEC regulations on short selling practices. https://t.co/mYX8Ab3JwH— Ro Khanna (@RoKhanna) January 28, 2021
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.