It’s not every day that small investors challenge Wall Street and outperform hedge funds, but that’s exactly what happened after a group of investors on Reddit used the Robinhood app to make undervalued stocks soar. In reaction and “in light of recent volatility,” Robinhood placed restrictions on certain stocks, including GameStop, BlackBerry, Nokia, and AMC Theaters.
According to a class-action lawsuit filed on January 28, 2021, Robinhood breached its Customer Agreement, fiduciary duties, and “implied covenant of good faith and fair dealing” by preventing investors from buying profitable stock. Some investors allegedly suffered losses as a result of Robinhood’s actions.
Our Dallas Robinhood Attorneys Are Here to Help
The class-action lawsuit claims Robinhood removed GameStop stock “purposely and knowingly to manipulate the market.” A separate lawsuit concerning BlackBerry, Nokia, and AMC Theaters claims Robinhood decided “to protect institutional investment at the detriment of retail customers.”
Call us at (214) 739-0100 to schedule a free case evaluation.
Short Squeezes and Market Volatility
Robinhood is a trading app that aims to “democratize finance for all,” appeal to young millennial traders, and make trading accessible to everyday Americans. A group of online traders took the app’s message to heart, gathering on Reddit’s r/wallstreetbets forum to purchase stocks that are “fundamentally hated” by hedge funds, thus creating a short squeeze.
In trading, a short squeeze occurs when a stock that many investors bet against jumps in value. To cut their losses, investors must buy the stock at a premium, which drives the price up even more and creates volatility in the stock market. When small traders from Reddit decided to purchase GameStop stock, the price of that stock rose from $43 to $347 per share, and many big-time traders who bet against GameStop lost money.
Redditors then went on to invest in other undervalued stocks, such as AMC, BlackBerry, and Nokia, creating even more volatility in the market. These unexpected moves from small traders sent people who trade the stock market professionally into a panic.
In an attempt to quell the panic and protect its financial interests, Robinhood restricted trading on GameStop and other stocks. While “official” platforms allowed these stocks to be traded, Robinhood stopped the “buying frenzy” that began on Reddit. As a result, GameStop stock fell by 33.42%. On February 2, 2021, the price fell from $227 to $93.
Many small investors feel like they missed out on a trading opportunity, and some are suing Robinhood for lost profit.
Our Robinhood class-action attorneys in Dallas, TX can help you fight for the money you would have made during this unique opportunity.
Small traders are not the only people who are concerned with Robinhood’s actions. Lawmakers from both sides of the political spectrum have questioned Robinhood’s decision to interfere with the stock market. Democratic Representative Alexandria Ocasio-Cortez stated:
“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.”
In a rare show of bipartisanship, Republican Senator Ted Cruz agreed with Ocasio-Cortez. The Biden-Harris administration made the following statement about the market volatility:
“Our economic team, including Secretary Yellen and others, are monitoring the situation…It’s a good reminder, though, that the stock market isn’t the only measure of the health of our economy.”
As U.S. officials watch Robinhood and the stock market carefully, traders seek legal recourse against Robinhood.
Multiple Class-Action Suits
According to PC Mag, Robinhood users have filed 34 civil complaints against the company. One complaint filed in California even claims that Robinhood and other major stock trading platforms engaged in a conspiracy and violated antitrust laws by preventing retail investors from buying stocks.
A class-action lawsuit filed in San Francisco puts it best:
“Robinhood (and Apex Clearing Corporation) stole from the poor to give to the rich.”
With more than 30 lawsuits available, you may not know which one to join – or how to get involved.
That’s where Mathias Raphael PLLC Accident & Injury Lawyers comes into play. We see ourselves as civil justice warriors, and we are committed to helping you get the compensation you deserve. Our legal team will take a personalized, client-centered approach to fight for your rights. We hold ourselves to the highest standards and will provide you with fearless legal advocacy.
All you need to do is call us at (214) 739-0100 today or give us more information about your situation through our online contact form. We will be in touch shortly and look forward to learning more about your case during a free consultation.