The first lawsuit filed in the Southern District Court of New York alleges that Robinhood "purposefully, willingly, and knowingly" restricted certain securities transactions, including GameStop. The other filed in the Northern District Court of Illinois alleges that the app manipulated its platform.
|AMC||AMC ENTERTAINMENT HOLDINGS INC||8.01||-0.53||-6.21%|
|BBBY||BED BATH & BEYOND, INC.||28.41||-0.62||-2.14%|
"Robinhood’s mission is to 'democratize finance for all.' They have failed," Alexander Cabeceiras, an attorney for the Derek Smith Law Group representing plaintiff Brendan Nelson in the New York suit, said in a statement to FOX Business.
Cabeceiras continued: "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."
Robinhood, TD Ameritrade and other platforms restricted trading on Tuesday and Wednesday following an unexpected surge in trading volume of shares of GameStop, AMC Entertainment, Bed Bath & Beyond, BlackBerry and others.
Robinhood said in a Thursday press release that it was "restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG" and "raised margin requirements for certain securities."
The stock symbols in the app's press release were for American Airlines, AMC Theaters, Bed Bath and Beyond, Blackberry, Castor Maritime, retailer Experss, Inc., Game Stop, headphone maker Koss, intimate apparel manufacturer Naked Brand Group, Nokia mobile phones, Sundial Growers -- maker of cannabis products -- one-time beloved candy, Tootsie Roll and web travel company, Trivago.
|AAL||AMERICAN AIRLINES GROUP, INC.||21.52||-0.65||-2.93%|
|NAKD||NAKED BRAND GROUP||0.92||-0.07||-7.20%|
|TR||TOOTSIE ROLL INDUSTRIES||32.33||+0.76||+2.40%|
Robinhood did not immediately respond to inquiries from FOX Business on the lawsuit.
The share prices of those stocks spiked this week as retail investors, spurred by the online Reddit forum WallStreetBets, piled into the stocks. The volatility continued into Wednesday as platforms like Robinhood and Interactive Brokers limited trading on certain stocks.
GameStop Corp. shares have risen by more than 1,900% since the start of this year, hurting market short-sellers. As of Tuesday, short sellers of GameStop were already down more than $5 billion in 2021, according to S3 Partners.
Cabeceiras added that he believes Robinhood's decision to restrict transactions of certain securities like Gamestop is "a breach of Robinhood's fiduciary duty and contractual obligations to the millions of retail investors who relied on their platform."
The attorney described his plaintiff as a "hardworking, blue-collar tradesman who invested on the side to earn extra income."
"Limiting his ability to buy a security on the open market for absolutely no legitimate reason is unprecedented. Particularly in light of the fact that Robinhood's competitors continue to allow for the purchasing of GME and other securities," he said.
The second lawsuit states that the plaintiff, Robinhood user Richard Gatz, owned two "options contracts for [Blackberry] at the time of the trading halt."
"The value of these options decreased by almost [200%] and the BB stock price fell over [$10] from the prior days close," the complaint states.
It continues: "If the stocks are not allowed to be trading, it is likely that Plaintiff will take a financial loss solely due to the Defendant's behavior and manipulation of their trading platform. The Defendant has on information and belief continued to allow investment in these securities by institutional investors who have benefited from the stoppage of retail investment."
Much of professional Wall Street remains pessimistic that GameStop's stock can hold onto its immense gains. GameStop is unlikely to start making big enough profits to justify its $22.2 billion market valuation anytime soon, analysts say.
The Associated Press and FOX Business' Paul Conner contributed to this report.