A Robinhood customer on Thursday sued in New York City after the trading app restricted purchases of GameStop shares on its platform.
The lawsuit, filed in federal court in Manhattan, claims Robinhood removed the video game retailer “purposefully and knowingly to manipulate the market.” The suit accuses Robinhood, a popular trading and individual brokerage app used by retail investors, of breaching its contract by failing to disclose it “was going to randomly pull a profitable stock from its platform.” It also accuses the company of negligence and of breaching its fiduciary duties and its “implied covenant of good faith and fair dealing.” […] The plaintiff, Brendan Nelson, is described in the complaint as a Robinhood customer who lost out on the opportunity to buy GameStop as its stock climbed higher.
In a statement to CNBC, Nelson’s lawyer said “hundreds of individuals” are “reaching out to be added to this suit.”
“Robinhood’s mission is to ‘democratize finance for all.’ They have failed,” said Alexander Cabeceiras. “They have purposefully failed this mission and failed their clients in an attempt to — what appears to be — appease their investors and/or potential investors.”
The move by Robinhood has prompted bipartisan criticism from Sens. Ted Cruz and Mike Lee to Reps. Alexandria Ocasio-Cortez and Ro Khanna.
“We need an investigation into RobinhoodApp’s decision and who influenced that,” Khanna wrote on Twitter. “And this shows the need for a financial transaction tax on hedge fund shorting and SEC regulations on short selling practices.”
Earlier Thursday, Ocasio-Cortez called on the House Committee on Financial Services to hold a hearing into Robinhood’s trading freeze.
“We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit. As a member of the Financial Services Cmte, I’d support a hearing if necessary,” Ocasio-Cortez tweeted.
Robinhood and other retail brokerages are taking steps to tamp down the speculative frenzy surrounding companies such as GameStop, but the actions only sparked more volatility and an outcry from users of the platforms and some members of Congress that small investors are being treated unfairly.
GameStop stock has rocketed from below $20 earlier to close around $350 Wednesday as a volunteer army of investors on social media challenged big institutions who had placed market bets that the stock would fall.
The action was even wilder Thursday: The stock swung between $112 and $483. At midday it was down 27% at $255.
Robinhood said Thursday investors would only be able to sell their positions and not open new ones in some cases, and Robinhood will try to slow the amount of trading using borrowed money.
The Associated Press contributed to this report.