Court Clears Robinhood in Meme Stock Controversy
An update from Reuters discloses that an appeals court in the United States has dismissed particular allegations levied against Robinhood by a consortium of investors. These claims centered on the trading limitations enforced by the platform during the meme stock craze that unfolded three years ago.
Back in January 2021, a cohort of novice traders on the Wall Street Bets subreddit orchestrated a surge in stock prices for Gamestop, AMC Entertainment, and Blackberry. This maneuver incurred substantial losses for hedge funds that had bet against these stocks. Robinhood intervened by restricting trading on various “meme stocks,” citing concerns over risk management.
The stock market frenzy prompted Robinhood to secure over $1 billion in emergency funding. Consequently, other brokerages such as TD Ameritrade, IG Group, and Charles Schwab also curtailed trading on these surging stocks and their derivatives.
Following these events, aggrieved traders filed a lawsuit against Robinhood, accusing the platform of market manipulation. They contended that Robinhood’s actions had caused them to miss out on significant market upswings.
However, the unanimous decision rendered by the 11th US Circuit Court of Appeals in Atlanta, echoing a federal court ruling from November 2021, underscored that Robinhood’s standard client contract explicitly allowed for such restrictions. This emphasized that Robinhood was under no obligation to execute every trade request.
Furthermore, the court dismissed assertions that Robinhood had been negligent in preventing investor losses or ensuring the seamless functioning of its essential systems. Circuit Judge Britt Grant acknowledged that while Robinhood’s decision to limit trading on meme stocks may have impacted its public image, the court’s foremost concern is whether Robinhood fulfilled its legal obligations.
The Blows In The Court
In a distinct development, a lower court ruled in favor of Robinhood last year in a case where Massachusetts Secretary of State Bill Galvin accused the broker of breaching its fiduciary duty by encouraging inexperienced traders to participate in high-risk trades. However, Massachusetts’ securities regulator is presently appealing this case at the Supreme Judicial Court of Massachusetts.
