The online stock trading app Robinhood was hit with a class action lawsuit Thursday after it restricted buying of stocks that were popularized on a Reddit web forum.
In the Manhattan federal court suit, Massachusetts resident Brendon Nelson claimed the app blocked users from its service by pulling the GameStop stock from its trading.
“On or about January 27, 2021 Robinhood, in order to slow the growth of GME
deprived their customers of the ability to use their service, abruptly, purposefully,
willfully, and knowingly pulled GME from their app,” the suit states.
“Meaning, retail investors could no longer buy or even search for GME on Robinhood’s app,” it adds.
Nelson filed the suit on behalf of all Robinhood users in the US and is asking a federal judge to require the app to immediately reinstate the stock to the trading platform.
The suit alleges the app violated a rule from the Financial Industry Regulatory Authority, which states apps like Robinhood, “must make every effort to execute a marketable customer order that it receives promptly and fully.”
By pulling the GameStop stock — and several other similar stocks — the app has blocked users from earning gains by buying and profiting from potentially shorting the stock, the suit alleges.
“In sum, Robinhood has completely blocked retailer investors from purchasing GME for no legitimate reason, thereby depriving retailer investors from the benefits of Robinhood’s services,” the suit states.
In a statement earlier Thursday, the app said they were restricting trading for several stocks, “in light of recent volatility.”
Robinhood users, bolstered by the Reddit page /r/wallstreetbets, have skyrocketed the price of several cheap stocks like GameStop by buying it up in bulk after learning hedgefunds were “shorting” the stock, or betting on it to fail.