Robinhood Is Probably Facing A Lawsuit From Meme Stock Investors
- A US court judge has greenlit investors in meme stocks like GameStop and AMC to file a lawsuit against Robinhood for allegedly manipulating the market.
- District Court Judge Cecilia said that the crypto and stock trading platform must face the investors for banning them from investing in these stocks in 2021’s meme stock rally.
The United States District Court Judge Cecilia Altonaga in Miami recently said that Menlo Park-based financial services company Robinhood Markets Inc must face market manipulation claims over its 2021’s trading restrictions on “meme stock” rally.
The retail trading platform is the target of a number of lawsuits after temporarily banning clients from trading certain hot stocks in January last year, including GameStop and AMC.
On Thursday, the U.S. Judge ruled that investors in GameStop Corp, AMC Entertainment Holdings Inc, and seven other stocks may move forward with a potential class-action lawsuit alleging that the restrictions unduly lowered share prices.
Due to a social media-driven rise that lifted the shares of these nine companies to record highs, trading in the affected securities was subsequently restricted by Robinhood and others. The act shattered market trust and frustrated retail investors and led to heavy volatility and serious losses for hedge funds that had bet against the meme stocks.
Robinhood revoked customers
The trading platform revoked its customers’ ability to buy certain stocks when its clearinghouse demand for cash soared to $3 billion-an obligation mandated by the National Securities Clearing Corporation. Robinhood didn’t stop there and temporarily restricted the number of shares customers could purchase in some hot stocks.
Thursday’s ruling also denied the exchange’s motion to dismiss several allegations that it had manipulated the market by canceling purchase orders, liquidating its customers’ shares, and closing out options in order to artificially lower the values of the nine stocks.
According to the ruling, although a claim of market manipulation would not be supported by the restrictions alone, Robinhood’s “opaque and conflicting statements made to hide its lack of capital” display an intent “to artificially depress share prices for its personal benefit.” Moreover, the judge feels that the company must also face the investors’ allegations that the manipulation violated a federal statute prohibiting securities fraud. However, she dismissed a claim that the company induced investors to sell their shares.
Judge Altonaga previously dismissed allegations that the firm and other brokerages illegally engaged in a “short squeeze” that cost hedge funds betting on dropping stock prices billions of dollars in losses. The judge also rejected arguments made by retail investors that Robinhood had been negligent and had violated its commitment to customers. She is in charge of a number of lawsuits alleging Robinhood and others broke the law by their actions during the social media-driven rally.
Cheryl Crumpton, the associate general counsel of litigation and regulatory enforcement at Robinhood, said that the trading platform maintains its adherence to its actions, which it sees as “appropriate and necessary to support [its] customers.”
The platform also recently laid off its staff owing to losses in 2022 and it seems that the firm is going through a very tough time.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
