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Robinhood and Market Manipulation for GameStop and Others Class Action

The complaint for this action claims that three Robinhood companies manipulated the markets for certain stocks to mitigate its own risks. The complaint alleges that Robinhood Financial, LLC, Robinhood 2 Securities, LLC, and Robinhood Markets, Inc. took unfair actions for stocks of certain companies, like GameStop, to prevent buys, sell shares, and lower prices.

The class for this action is all clients of Robinhood in the US who, between January 27 and January 29, 2021 (1) placed orders in the stocks at issue in this case that were not executed or (2) owned shares of these stocks that Robinhood sold without their consent. A Massachusetts class has also been defined.

Robinhood is an online platform that allows retail investors to trade securities online, including stocks, options, ETFs, and cryptocurrency.

Robinhood offers free trades, that is, trades without commissions. The complaint says it does this by making the trades not on major exchanges but on private ones, a practice known as order flow, which may give traders less favorable terms. The complaint says that the orders are executed “in so-called ‘dark pools,’ private exchanges run by banks, hedge funds, high-frequency trading firms, and other financial institutions. This is a lucrative arrangement for the dark pools,” who also use it to gain information about trends in the market.

The complaint says, “on information and belief,” that Robinhood also sold call options to traders and lent securities for short sales. Short sales and sales of call options both indicate a bet that the price of a stock will go down. Robinhood exacerbated its risks by providing its own clearinghouse for trades. This means that if things went wrong for the short sellers or sellers of calls and they could not make good on their trades, it would be Robinhood’s clearinghouse that would get stiffed.

At issue in this case are a long list of securities, including those of GameStop, BlackBerry, Nokia, AMC Entertainment, and Tootsie Roll. Many professional or institutional investors expected securities for these companies to fall, so they undertook short sales or sold call options. However, instead these stocks rose, allegedly through the efforts of retail investors.

According to the complaint, this put Robinhood and its clearinghouse at risk. On January 27, the complaint alleges, Robinhood did four things: “(1) delisted [the securities at issue] from its trading platform, (2) prohibited its users from purchasing shares of [the securities at issue], only permitting them to sell shares they already owned, (3) unilaterally sold these assets at rock-bottom prices from the accounts of some unlucky users without their knowledge or consent, and (4) accepted trade users’ orders for these assets and cancelled them unilaterally.”

In other words, it would allow users to sell but not buy the securities, and it sold the securities from some users’ accounts without telling them, at prices lower than they should been.

Robinhood claimed this was a risk-management decision taken to comply with “SEC net capital obligations and clearinghouse deposits…”

Article Type: Lawsuit
Topic: News

Most Recent Case Event

Robinhood and Market Manipulation for GameStop and Others Complaint

February 2, 2021

The complaint for this action claims that three Robinhood companies manipulated the markets for certain stocks to mitigate its own risks. The complaint alleges that Robinhood Financial, LLC, Robinhood 2 Securities, LLC, and Robinhood Markets, Inc. took unfair actions for stocks of certain companies, like GameStop, to prevent buys, sell shares, and lower prices.

Robinhood and Market Manipulation for GameStop and Others Complaint

Case Event History

Robinhood and Market Manipulation for GameStop and Others Complaint

February 2, 2021

The complaint for this action claims that three Robinhood companies manipulated the markets for certain stocks to mitigate its own risks. The complaint alleges that Robinhood Financial, LLC, Robinhood 2 Securities, LLC, and Robinhood Markets, Inc. took unfair actions for stocks of certain companies, like GameStop, to prevent buys, sell shares, and lower prices.

Robinhood and Market Manipulation for GameStop and Others Complaint
Tags: Breach of Contract, Breach of Fiduciary Duty, Gross Negligence