Stock trading app Robinhood has been hit with two class action lawsuits after preventing its users from buying several popular stocks that have hit record highs this week including GameStop (GME), Blackberry (BB), Nokia (NOK), and AMC Theatres (AMC).
Several of these stocks, which have been buoyed by momentum from online communities such as WallStreetBets, had hit all-time highs before Robinhood stopped its users from buying them. After Robinhood started blocking these buys, the price of these stocks plummeted and they have yet to return to their previous highs.
Robinhood claimed that its decision to block millions of customers from buying these stocks was due to “recent volatility” and helping its customer “navigate this uncertainty.”
But the two class action lawsuits, one which was filed in the Southern District of New York by plaintiff Brendan Nelson and a second which was filed in Northern District of Illinois by plaintiff Richard Joseph Gatz, have accused Robinhood of depriving “retail investors of the ability to invest in the open-market and manipulating the open-market” and protecting “institutional investment at the detriment of retail customers.”
The Southern District of New York lawsuit alleges that by blocking purchases of GameStop stock, Robinhood has deprived retail investors of potential gains while benefiting “individuals and institutions who are not Robinhood customers but are Robinhood large institutional investors or potential investors.”
Additionally, it accuses Robinhood of breaching its obligations under the Financial Industry Regulatory Authority’s (FINRA’s) rule 5310 which requires apps such as Robinhood to “make every effort to execute a marketable customer order that it receives promptly and fully.”
The lawsuit is seeking an immediate injunction requiring Robinhood to reinstate GameStop stock on its platform along with “punitive damages for the willful, wanton, and reckless behavior of Defendants.”
We obtained a copy of the Southern District of New York class action lawsuit for you here
The Northern District of Illinois lawsuit focuses on Robinhood’s decision to halt trading on Blackberry, Nokia, and AMC for retail investors. It alleges that the decision was made to “protect institutional investment at the detriment of retail customers” and adds that the decision “appears to be in lock-step with other securities trading platforms, such as Ally Financial, TD Ameritrade and potentially others.”
We obtained a copy of the Northern District of Illinois class action lawsuit for you here
In a statement to CNBC, Nelson’s lawyer, Alexander Cabeceiras, said that “hundreds of individuals” are “reaching out to be added to this suit.”
Cabeceiras added: “Robinhood’s mission is to ‘democratize finance for all.’ They have failed. They have purposefully failed this mission and failed their clients in an attempt to — what appears to be — appease their investors and/or potential investors.”