A class-action lawsuit has been filed in Florida against the trading app Robinhood for preventing its members from trading GameStop shares last week.
The suit, filed in the Middle District of Florida in Tampa by the law firm Shumaker, seeks more than $5 million dollars in damages.
“Robinhood chose to deny its customers access to the marketplace despite profiting off the customers who it lured in under the promise of market participation,” said Michael S. Taaffe, with the law firm. “Robinhood’s negligent failures are all the more serious given the company’s history of such breakdowns including last year during the biggest single-day point gain in the history of the Dow Jones Industrial Average.”
Class Action Lawsuit against Robinhood by ABC Action News on Scribd
RELATED: Bipartisan group of lawmakers criticize Robinhood's decision to restrict trading on GameStop stock
Fueled by small-time traders who had banded together on social media, shares for GameStop closed at an all-time high on Jan. 27. But when the market opened the next day, Robinhood restricted trading of the stock to its 10 million customers, citing market volatility despite other competing broker-dealers continuing to execute trade orders, Shumaker said.
At the time Robinhood shut down transactions, GameStop was trading at about $445 per share. But during pre-market hours on Jan. 28, shares of GameStop began to drop precipitously, falling to as low as $263 per share. When the market opened, GameStop rapidly rose from $263 to a peak of $483 per share within a span of 30 minutes, all while Robinhood customers were forced to watch from the sidelines, the lawsuit alleges.
“The restrictions put in place by Robinhood fly in the face of the principles the company promoted to its own customers through its marketing materials and agreements,” Taaffe added. “In short, Robinhood breached its obligations and was negligent in allowing this to happened – all at the expense of its customers.”
Last week, Robinhood CEO Vladimir Tenev denied that the company restricted trading on GameStop at the behest of market-makers or hedge funds. Instead, Tenev said the decision to restrict trading was made pre-emptively for fear that continued high-velocity trading on GameStop could lead to Robinhood exceeding SEC net capital requirements.
Robinhood customers who believe they were damaged by the GameStop outage can learn more about the class-action lawsuit by emailing Shumaker at RobinhoodClassAction@Shumaker.com.
This story was originally published by Dan Trujillo on WFTS in Tampa, Florida.