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Class Action Suit Moves Forward Against Robinhood Over Halting Meme Stock Trading

Forbes logo Forbes 8/11/2022 Derek Saul, Forbes Staff

Topline

A federal judge ruled Thursday that Robinhood must defend itself in court against a class action lawsuit related to the online brokerage’s January 2021 decision to halt trading in exploding “meme stocks” like AMC and Gamestop, several outlets reported Thursday, though Robinhood vows to “vigorously defend” itself in the case.

Robinhood will have to defend its decision to halt the sale of nine securities last January in court. AFP via Getty Images © Provided by Forbes Robinhood will have to defend its decision to halt the sale of nine securities last January in court. AFP via Getty Images

Key Facts

Robinhood’s decision to temporarily bar the purchase of surging stocks like AMC, Bed Bath & Beyond and GameStop clears the “particularized threshold” of “market manipulation” for the suit to move forward, according to Cecilia Altonaga, the chief judge at the United States District Court for the Southern District of Florida, Bloomberg reported.

Altonaga dismissed several of the allegations against Robinhood, according to Bloomberg, and noted the case presents “interesting legal questions, convoluted by the novelty of Robinhood’s platform.

The suit was brought forward by investors in the nine halted stocks, per Reuters.

Robinhood continues to support its decision as the meme stock frenzy represented “an extraordinary, once in a generation event that stressed every stakeholder in the market,” Cheryl Crumpton, Robinhood’s associate general counsel of litigation and regulatory enforcement, said in a statement to Forbes.

Crucial Quote

Robinhood plans to “vigorously defend ourselves” in the lawsuit, Crumpton said in the statement, explaining: “We continue to stand by our actions during this period, which we believe were appropriate and necessary to protect and support our customers.”

Key Background

Robinhood blocked the purchase of several securities that soared in price backed by a rally from Reddit’s WallStreetBets community on January 28, 2021, citing market volatility, but allowing customers to sell their positions in the affected stocks. GameStop shares rose roughly 1,700% in January 2021, while AMC shares jumped about 840% in the period. Robinhood’s decision to partially halt trading met intense bipartisan backlash, leading to several class-action lawsuits. The company has paid $165 million to government agencies since 2020 related to penalties for misleading customers and failing to meet compliance regulations. Robinhood’s stock is down more than 70% from its initial public offering price last July, though it has rallied more than 10% over the last month.

Further Reading

Robinhood Faces Anger, Class-Action Suits And Political Pushback After Curbing Trade Of GameStop (Forbes)

Report: Outraged Traders Have Been Besieging Robinhood’s Corporate Headquarters (Forbes)

Robinhood’s Crypto Arm Hit With $30 Million Fine By State Regulator (Forbes)

Founder Of WallStreetBets Discusses Why The Group Unleashed Chaos On GameStop—And Why He’s (Really) Exiled From Reddit (Forbes)

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