A class-action lawsuit was filed Thursday against the popular investing app Robinhood after it removed GameStop stock (GME) from its platform.
Robinhood is accused of violating its Customer Agreement by randomly pulling GME and other stocks from its platform without adequate explanation, depriving users of potential gains.
By removing the stock “in the midst of an unprecedented stock rise,” Robinhood “deprived retail investors of the ability to invest in the open-market and manipulating the open-market,” the lawsuit, which was filed in the Southern District of New York, alleges. (RELATED: Biden Administration Is ‘Monitoring’ Gamestop Stock Trading, White House Says)
Robinhood blocked users from purchasing shares of several companies, including GameStop and AMC, Thursday morning after Reddit users on the community WallStreetBets (WSB) drove the price of GameStop shares to over $500 in pre-market trading. Hedge funds and Wall Street firms had widely shorted GameStop in the past few months – meaning they had bet that the price of GME would go down – due to a belief that the company would fail to adapt to the industry’s shift to digital downloads. After online retail investors increased the price of shares by over 600%, hedge funds lost billions of dollars.
Short sellers on Wall Street have lost more than $5 billion amid GameStop’s rally, including $2.5 billion from last Friday to Monday, according to CNBC.
Gamestop’s stock began to rise around Jan. 11, the lawsuit states. The company limited investors from buying or even searching for GME on its app Thursday in order to slow the growth of the rapidly rising prices.
The complaint argues that Robinhood, an app that markets itself to younger investors, “disregarded their mantra” which was tweeted by the company in March of 2016. The company wrote: “Let the people trade.”
Let the people trade.
— Robinhood (@RobinhoodApp) March 23, 2016
“Robinhood’s actions were done purposefully and knowingly to manipulate the market for the benefit of people and financial intuitions who were not Robinhood’s customers,” the complaint alleges. “Since pulling the stock from their app, GME prices have gone up, depriving investors of potential gains.”
“Additionally, in the event GME goes down, Robinhood has deprived investors of ‘shorting’ GME in the hopes the price drops,” the lawsuit added.