Separate lawsuits filed in federal courts in New Jersey, Florida, California, Texas and other states accuse Robinhood and its divisions of curbing trading on its platform and breaking laws, including breach of contract and fiduciary duty, WSJ reported.
An individual lawsuit filed last week in the Southern District of New York accuses Robinhood of denying people from using its platform and preventing potential gains without a legitimate reason, per WSJ. Another lawsuit filed in the Northern District of California accuses Robinhood of denying other investors the opportunity to buy GameStop stock in the open market.
“We look forward to seeking justice for consumers and holding Robinhood to account for its conduct last week,” Jason Rathod, a lawyer at Migliaccio & Rathod representing plaintiffs, said in an email to WSJ. He added that the startup “deflected responsibility and acted as if external forces beyond its control are responsible for suspending trading.”
The trading frenzy last week caused Robinhood and other online brokerages to restrict trading in stocks like GameStop and AMC. Shares soared as individual investors took to social media to buoy each other to buy stocks and options. Shares of GameStop had been trading below $20 earlier in January but closed at more than $347 on Jan. 27, WSJ reported.
The restrictions on the trading platforms left users with the choice of holding their stocks or selling them, according to WSJ. Shares of GameStop and AMC fell Thursday (Jan. 28) and bounced back Friday (Jan. 29) after Robinhood allowed limited buys. GameStop shares closed at $90 on Tuesday (Feb. 2). The brokerage loosened restrictions further Wednesday.
“To be the trusted and responsible platform you can rely on, Robinhood has to operate within the existing regulatory environment,” the company said in a blog post on Monday (Feb. 1). “We have to make progressive strides while simultaneously complying with laws and regulations outside of our control.”
Robinhood’s planned initial public offering (IPO) is likely on hold following the GameStop debacle, according to a PYMNTS report.