Backlash: Retail Traders Sue Robinhood Over Suspension Of Buy Orders

Retail traders in two states have sued Robinhood, the app intended to make stock trading accessible, over the decision made to stop buy orders on GameStop (GME) stock and other “meme stocks” like AMC Theaters, in the current controversy involving Reddit and the stock market, a Thursday (Jan. 28) report from Coindesk said.

The suits, which have been filed separately, criticize Robinhood over the decision, which had an instant effect on the impacted shares. GameStop has been reaching new highs for days now, boosted by Reddit users intending to disrupt the market with squeezing and mass speculation. But now it’s started to fall once Robinhood put the hold down.

Brendon Nelson of Massachusetts, who filed one of the suits, alleged that Robinhood had tried to “slow the growth of GME” for no reason, according to Coindesk. He said the move was for the benefit of Robinhood’s institutional investors rather than for any public good.

Bloomberg reported that Robinhood has begun to draw some of its credit lines with banks, according to anonymous sources.

The report says that the company tapped at least several hundred million dollars, and the lenders include JPMorgan Chase and Goldman Sachs.

These actions, according to Bloomberg, suggest that the recent chaos and controversy surrounding the GameStop and Reddit situation has begun to drag on Robinhood’s finances.

The company is among several others who also put the stop to trading in shares of companies like GameStop and AMC, which has sparked a wildfire of criticism online.

In addition, Robinhood has also been criticized for telling some users it was closing out their positions in what it claimed was an attempt to mitigate risk from the “volatility” going on, which Robinhood said could pose “substantial risks” for brokerages and make it necessary to impose restrictions.

PYMNTS reported that numerous other brokers have taken actions to clamp down on trades for the aforementioned companies, including Charles Schwab, Interactive Brokers and TD Ameritrade. Interactive Brokers, in a statement, said the restrictions would be needed until exchanges and regulators take action.