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Robinhood is facing dozens of lawsuits over GameStop stock freeze

Robinhood is facing dozens of lawsuits over GameStop stock freeze


Lawmakers have also called to investigate

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Photo by Sean Hollister / The Verge

Stock trading app Robinhood is facing dozens of lawsuits after the company restricted several stocks popular on the r/WallStreetBets subreddit. At least 30 parties across 10 states have sued the company in federal court, many seeking class action status. They allege that Robinhood users lost millions of dollars because they were unable to buy or sell stock during the freeze, and that the company chose to “manipulate the market” to help other financial institutions.

Robinhood, which bills itself as a democratizing force in the stock market, helped facilitate an unprecedented boom around a handful of “meme stocks” last month. But on January 28th, it infuriated users by freezing trades on several of these stocks. That included GameStop ($GME) as well as AMC ($AMC), BlackBerry ($BB), Bed Bath & Beyond ($BBBY), and Nokia ($NOK). The company defended the move in a blog post, calling it a “risk-management decision” undertaken in the face of “extraordinary circumstances.” The company denied reports that it had sold some users’ shares without permission.

Robinhood says it restricted trading under “extraordinary circumstances”

The answer didn’t satisfy users. Robinhood user Brendon Nelson filed the first lawsuit in New York state that day, accusing the company of negligence and breaching its contract with traders. More suits have followed, spread across courts in New Jersey, California, Texas, Florida, and other states. Some plaintiffs simply complain about missing a potential windfall, but others lay out more specific damages: Patryk Krasowski of Illinois, for instance, claims he lost $220,000 because Robinhood wouldn’t let him exercise GameStop purchase options.

“Robinhood has completely blocked retailer investors from purchasing [GameStop stock] for no legitimate reason,” reads Nelson’s complaint. It claims Robinhood “failed to provide adequate explanation” about pulling a profitable stock from its platform and “knowingly put their customers at a disadvantage compared to customers who used other trading apps.” Robinhood has lifted the blanket freeze on GameStop and other stocks, but it’s maintained strict trading limits for users.

An unrelated class action lawsuit was certified last week

Nelson requested that courts force Robinhood to reinstate full access to trading GameStop stock, in addition to paying financial damages for any Robinhood users who were unable to execute GameStop stock trades. Other parties made similar pleas, and several are seeking class action status. Some suits also targeted other institutions, including the financial services companies Citadel Securities and Apex Clearing, which have worked with Robinhood to execute trades.

The cases were filed only days ago, and they may not be heard until the GameStop stock bubble has deflated. While a Washington judge did certify a class action suit against Robinhood last week, that case dates to 2019 and concerned the app’s “refer a friend” program. As MarketWatch notes, any lawsuit might also be stymied by Robinhood’s arbitration clause — a section of the user agreement that demands conflicts be settled out of court.

Disgruntled users aren’t the only threat for Robinhood, however. The company’s decision drew bipartisan condemnation from lawmakers, with Rep. Alexandria Ocasio-Cortez (D-NY) and others calling to investigate the company’s decision. And CEO Vlad Tenev is expected to testify in a February 18th hearing before the House Financial Services Committee.