Popular online stock trading platform, Robinhood, was slapped with federal lawsuits in both New York and Illinois on Thursday, January 28, 2021 by independent investors in potential class actions. Now, numerous other putative class actions have been filed against Robinhood. The lawsuits stem from Robinhood’s decision to block their users from purchasing GameStop shares, in addition to the shares of several other companies.

It is unclear if and how these cases will proceed. Marcia Brown of The American Prospect provides an in depth look at these cases and how they may be impacted by forced arbitration clauses that corporations are using to protect themselves and how Congress could fix these issues in the article “How the Supreme Court Protects Robinhood.”

This blog is intended to provide information to the general public and to practitioners about developments that may impact Oregon class actions.

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Image of trading graphPopular online stock trading platform Robinhood announced on January 28, 2021, “In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG. We also raised margin requirements for certain securities.” The decision to restrict trading has already led to multiple lawsuits against Robinhood by investors, including in connection with Robinhood’s new restrictions on trading Gamestop, Blackberry, Nokia, and AMC Theaters.  The Chicago Tribune reported that other brokerages, including Schwab, TD Ameritrade, and Interactive Brokers, also limited trading in certain stocks.  Robinhood’s decision drew attention from prominent politicians at both ends of the political spectrum including Alexandria Ocasio-Cortez (AOC).  Then, Robinhood reversed course and lifted some of the trading restrictions it had just implemented.

Gamestop, in particular, gained attention in recent weeks as the price of its shares surged.  Forbes and other outlets reported that smaller investors drove the price increase as part of a “short squeeze.”  A short squeeze can occur when rapid increases in the price of a stock lead to short sellers (investors who have shorted a stock) covering their positions.  Covering requires buying shares of the stock, which in turn further increases the price.  The Guardian and others have reported that members of the reddit forum wallstreetbets helped drive the rapid increase in the price of Gamestop stock that in turn caused the short squeeze.