Rob from the poor and give to the rich? Robinhood prompts furious backlash after restricting trades
Mere hours after once-popular trading app Robinhood announced it would be suspending purchases of stocks pushed by retail investors on Reddit, and the community backlash has been swift and harsh.
This morning, Robinhood said it had restricted transactions for American Airlines, AMC Entertainment, Blackberry, Best Buy, Castor Maritime, Express, GameStop, Koss Corporation, Naked Brand Group, Nokia, Sundial Growers, Tootsie Roll Industries, and Trivago N.V.
Though the trading app claimed the action was due to “significant market volatility,” the timing is suspicious given many of the stocks in question were ones pumped by Redditors initially going up against major Wall Street traders short-selling GameStop stock, later turning their attention to AMC, Blackberry and others. Average investors purchasing just a few shares or more helped push the price of GME to new all-time highs in the midst of a pandemic when fewer are buying from brick-and-mortar stores.
Given Robinhood’s mission statement that “Everyone should have access to the financial markets” and that it's trying to “democratize finance for all,” restricting trades for such stocks in the middle of massive numbers of purchases from individuals makes it seem like the platform’s management is being hypocritical: not allowing average investors to fight back against billion-dollar hedge funds manipulating the market by short-selling stocks.
In response, lawmakers, major industry players and even celebrities are piling on criticism of Robinhood.
Two United States congresspeople, Democratic Reps. Rashida Tlaib and Alexandria Ocasio-Cortez, have called for the U.S. House of Representatives Financial Services Committee to look into the trading platform’s actions and alleged market manipulation. Ted Cruz, a Republican senator who is currently being considered as a target of an ethics investigation for his alleged role in the terrorist attack on the U.S. Capitol, said he agreed with AOC's assessment of the situation.
This is beyond absurd. @FSCDems need to have a hearing on Robinhood's market manipulation. They're blocking the ability to trade to protect Wall St. hedge funds, stealing millions of dollars from their users to protect people who've used the stock market as a casino for decades. https://t.co/CGkJxVfzkv
— Rashida Tlaib (@RashidaTlaib) January 28, 2021This is unacceptable.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. https://t.co/4Qyrolgzyt
— Alexandria Ocasio-Cortez (@AOC) January 28, 2021Dave Portnoy, the founder of Barstool Sports who briefly entered the crypto space last year, is calling for Robinhood’s team to be jailed given its attempts to interfere in the free market:
“Robinhood’s entire business model is to cater to the exact people they are now trying to f--- with and scare into selling,” said Portnoy. “They will never recover from this.”
A group of investors has already taken legal action. Today, in the Southern District of New York, a class-action complaint was filed against Robinhood for restricting GME stock trades “in the midst of an unprecedented stock rise thereby deprived retail investors of the ability to invest in the open-market and manipulating the open-market.”
However, some experts are questioning the legality of Redditors "conspiring" to raise the price of these stocks. Preston Byrne, a partner at New York-based law firm Anderson Kill, said the retail investors’ actions may violate laws falling under the regulatory umbrella of the U.S. Securities and Exchange Commission.
“If two traders conspired to raise the price of a security it’d be unlawful,” said Byrne. “When two million people do it, some of the activity is bona fide, but a lot of it is not. I get that the Reddit factor makes it cute but the law is being broken.”
The impact of Robinhood’s decision to restrict trading has already affected these targeted stocks. GameStop stock fell 70% from a high of $469.42 yesterday to $141 earlier today, while AMC dropped roughly 62% in the same time frame. “Let the people trade” may no longer be representative of the platform after all.