Trading platform Robinhood found itself in the center of controversy today, and the water is only starting to boil. After a series of Robinhood bans on high-flying Reddit stocks like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC), a Robinhood class action lawsuit has been filed in the southern district of New York. Here is what you need to know now.
Redditors on r/WallStreetBets took GME stock and its short-squeeze peers to the moon. That rally dominated Wall Street news throughout the week, and it cost high-profile short-sellers quite a bit of money. Regulators have called for trading halts, and experts are bashing the cult of retail investors. Robinhood took a stand of its own Thursday, placing restrictions on eight securities including GME. As a result, investors can only close out their positions. There are also additional margin requirements on certain securities.
The Robinhood bans have been more than controversial. Ja Rule, Mark Cuban, Dave Portnoy and dozens of others are backing the r/WallStreetBets crowd. Users are leaving 1-star reviews and outright deleting the Robinhood app. And amid loud calls for a class-action lawsuit, plaintiff Brendan Nelson delivered.
Nelson, on behalf of all Robinhood investors, filed the Robinhood class action suit in the southern district of New York. He claims that Robinhood “purposefully, willfully, and knowingly” removed GME from its trading platform. Because of this, retail investors lost the “ability to invest in the open-market.” Nelson says he personally was affected by the trading restrictions, and believes he and other customers lost out on earnings opportunities.
As a result, he alleges that Robinhood may have violated rule 5310 from the Financial Industry Regulatory Authority (FINRA). Rule 5310 requires that Robinhood “must make every effort to execute a marketable customer order that it receives promptly and fully.”
Robinhood Class Action Lawsuit 2021 and Reddit Stocks
But what does the Robinhood class action lawsuit really mean? And what will happen to the Reddit stocks next?
Right now, there are several loud voices backing posters on r/WallStreetBets and the retail investors who use the Robinhood trading platform. Dave Portnoy of Barstool Sports called for the Robinhood founders to go to prison on Twitter (NYSE:TWTR). New York Rep. Alexandria Ocasio-Cortez is calling for a deeper investigation into the Robinhood bans. Reaching across the aisle so to speak, Texas Sen. Ted Cruz is doing the same. How this will actually play out remains to be seen. However, it appears that news of the Robinhood class action lawsuit is helping Reddit stocks.
As of this writing, GameStop and its peers still remain well off their highs. However, GME stock is making the climb up. Right now, shared have slightly trimmed their losses to trade at $257. AMC stock is doing the same, trading at $10.57.
Keep a close eye on the news. Whatever comes next will likely make the next moves on r/WallStreetBets and in the grouping of Reddit stocks.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.