Robinhood which is a stock trading app formerly popular with millennials is confronting legal lawsuits for its recent temporary ban on purchases of GameStop and other “meme-stocks” through its platform.
Robinhood is stacking up more class-action lawsuits from New York to Texas. Is this just the tip of the iceberg? https://t.co/woVh16JET1 — Cointelegraph (@Cointelegraph) February 3, 2021
The lawsuit which is filed in Houston, Texas claims that Robinhood along with other accused including TD Ameritrade and WeBull arrived at “a common understanding of what must be done, which they carried out with conscious parallelism.”
In competition law, conscious parallelism represents the conduct in which firms in an oligopoly set prices or terms without a formal agreement. A single company will take the lead in setting a price whereas the rest follow since the withdrawal from the behavior could risk share and lower profits.
“In short, the situation that was unfolding was a threat to traditional players in the finance industry, many of whom were Defendants’ largest customers, and it could not be allowed to continue.”
Robinhood along with various other platforms banned trades in a number of stakes. Those trades were aimed through a crowd-sourced collective purchasing strategy.
The restriction has been previously suggested through the r/Wallstreetbets subreddit in response to the news that several hedge-funds had taken short positions on GameStop which surpassed the available stock.
The strategy included a short-squeeze, “ultimately punishing the hedge funds and transferring a large sum of their money to individual investors.”
Robinhood and the other defendants alleged that the suspension of trading in GameStop and other shares restricted their users the potential to benefit from the fluctuations thereby actively exploited the course of the stocks.
Robinhood is accused of breaching consumer agreements, violating fiduciary duties, and violating anti-competitive practices and price-fixing rules.
The company did not provide an immediate reply to the request for a comment made by Cointelegraph.
A related lawsuit was filed in Manhattan on January 28. The frustrated customers were able to directly enter as a defendant through the online consumer-rights platform DoNotPay.
The uproar over the Robinhood’s actions has witnessed the wrath of Democratic Representative Alexandra Ocasio-Cortez thereby reportedly postpone the plans for an IPO in the aftermath of the PR disaster.
Metro-Goldwyn-Mayer, the Hollywood studio also felt that the scandal needed a feature-length reenactment and quickly snatch up the movie rights.