Robinhood clients say the company conspired with Wall Street to stop ordinary people from beating out wealthy hedge funds.
Amateur investors have filed more than 30 class action lawsuits against Robinhood, a tech start-up that allows ordinary people to buy and sell stocks online.
According to PCMag.com, enraged customers began initiating legal action against Robinhood mere days after the platform temporarily prevented users from trading certain stocks.
While Robinhood has maintained that its decision was made without prejudice, many of the app’s users claim the company wanted was doing a favor for Wall Street. For weeks, internet aficionados—many of whom frequent Reddit’s /r/WallStreetBets community—have been locked in a high-stakes battle against hedge funds, the latter of which had gambled on GameStop and several other large, well-known brands going out of business.
Reddit users launched a full-scale campaign to bolster GameStop stock. In a matter of days, the company’s stock price skyrocketed, moving from about $15 per share to nearly $200.
The sudden shift—nigh unprecedented for a company on the verge of collapse—caused wealthy hedge funds to lose billions of dollars, practically overnight.
However, Robinhood briefly prevented its users from continuing to buy GameStop stock.
Many of the recently-filed lawsuits against the app allege that Robinhood’s owners put a freeze on GameStop trades to benefit Wall Street traders with which it has close ties.
Several of the lawsuits, notes PCMag.com, were keen to observe that Robinhood only let its customers resume selling and trading stocks once GameStop shares began to tumble—something that would have benefited short-sellers, much to the detriment of amateur users who had purchased shares.
Robinhood clients—some of whom became millionaires when GameStop shares hit their ceiling—now say the app should be responsible for the losses caused by the app’s freeze on stock purchases.
“This is what the Hedge Funds wanted,” one Florida-filed complaint states. “When everyone is only selling, the price cannot go up because no one can buy the shares.”
Another class action, lodged in a California court, claims that Robinhood violated securities laws by allegedly colluding with Wall Street.
“Robinhood (and Apex Trading Corporation) stole from the poor to give to the rich,” the class action claims.
Robinhood has continuously defended its own actions.
““We did this because the required amount we had to deposit with the clearinghouse was so large—with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements—that we had to take steps to limit buying in those volatile securities,” the company said in a statement.
Although Robinhood’s user-agreement empowers the company to freeze trading whenever it sees fit, the platform’s GameStop-related restrictions were so overtly pro-Wall Street they caught the attention of Congress.
The Verge reports that Bronx Rep. Alexandria Ocasio-Cortez has demanded a full-scale investigation into Robinhood’s potential misconduct.
The company’s CEO, Vlad Tenev, is expected to testify in a congressional hearing later this month.