Class Action Suit Filed Against Robinhood Over Stock Freeze

Class Action Lawsuit Filed Against Robinhood for Restricting Trading

Traders left unable to buy newly boosted stocks, leading to price crashes and widespread losses, are now suing the platform.

Stock trading platform Robinhood has been hit with a class action lawsuit after restricting purchases of focal stocks in an ongoing battle between retail investors and Wall Street hedge funds.

The lawsuit, filed in the Southern District of New York, alleges that Robinhood purposefully “deprived their customers of the ability to use their service” in an attempt to “manipulate the market for the benefit of people and financial institutions.”

Before markets opened on Thursday, Robinhood announced in a press release that it would restrict certain stocks that have experienced “recent volatility”, while also raising margin requirements for some securities. Equities affected had been boosted by the interest of online investment subreddit r/wallstreetbets, drawing an unprecedented wave of new investments to struggling retail stocks in an attempt to damage the hedge funds that were shorting them.

GameStop, AMC, American Airlines, Bed Bath & Beyond, BlackBerry and Nokia were among the stocks affected, subsequently experiencing precipitous drops in value. GameStop fell 44% following the imposition of restrictions, while AMC plunged 57%.

Several other trading platforms, including Charels Schwab, TD Ameritrade and Webull also moved to restrict the volatile shares, though Robinhood’s popularity among online investors has drawn the greatest attention.

Robinhood’s move has already drawn attention from lawmakers, who condemned what they saw as preferential treatment of established Wall Street firms over smaller investors.

Robinhood has yet to comment on the lawsuit.

This is not the first of the trading platform’s recent legal worries, having agreed to a $65 million fine in December for misleading customers about the price of trading stocks using its service. It has also been challenged on whether it does enough to educate beginner investors about the inherent risks of day trading.

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