The financial trading app Robinhood is been hit with a federal class action lawsuit after it restricted trades to stocks popular on the Reddit forum r/WallStreetBets
The lawsuit, filed in the Southern District of New York on Thursday, alleges that the app “purposefully, willfully, and knowingly removing the stock ‘GME’ from its trading platform in the midst of an unprecedented stock rise, thereby deprived [sic] retail investors of the ability to invest in the open-market and manipulating the open-market.”
Alexander G. Cabeceiras, the attorney who filed the suit, tweeted shortly after: “‘Robinhood’s mission is to democratize finance for all.’ This is simply not true.”
Users of r/WallStreetBets had helped pump up the stock prices of struggling companies, most famously GameStop, as a counter to short-selling investment strategies. Through the subreddit’s campaign, GameStop’s stock ($GME) went from under $4 a share in early 2020 to well over $400 earlier on Thursday.
However, on Thursday morning, Robinhood restricted further trading of $GME—along with other stocks popular in the Reddit forum, such as BlackBerry, Nokia, and AMC—only allowing users to close out of their positions.
Redditors responded with rage. On Thursday, users of r/WallStreetBets created a separate forum, r/ClassActionRobinHood, to coordinate a possible lawsuit against the app. The subreddit had racked up over 10,000 subscribers as of Thursday afternoon. It is unclear whether this lawsuit is linked to the subreddit. The creator of the forum did not immediately respond to The Daily Beast’s request for comment.
Also on Thursday, Rep. Alexandria Ocasio-Cortez (D-NY), a member of the House Financial Services Committee, said she would “support a hearing if necessary” into Robinhood’s actions.
“We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit,” she wrote on Twitter.
Sen. Ted Cruz (R-TX) responded, “Fully agree.”
More to come
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