Robinhood, the stock trading app formerly popular with millennials, is facing another class-action suit, following its recent temporary suspension of purchases of GameStop and other “meme-stocks” through its platform.
The lawsuit, filed Jan. 29 in Houston, Texas, alleges that Robinhood, along with other named defendants including TD Ameritrade and WeBull, arrived at “a common understanding of what must be done, which they carried out with conscious parallelism.”
Conscious parallelism, in competition law, refers to behavior in which competitors in an oligopoly set prices or terms without a formal agreement. One entity will take the initiative in setting a price, while the others follow suit, as a departure from that behavior could threaten market share and lower profits.
“In short, the situation that was unfolding was a threat to traditional players in the finance industry, many of whom were Defendants’ largest customers, and it could not be allowed to continue.”
Robinhood and several other trading platforms suspended trades in a number of stocks, which were being targeted through a crowd-sourced collective purchasing strategy.
This had initially been proposed through the r/Wallstreetbets subreddit, in response to the revelation that certain hedge-funds had taken short positions on GameStop which exceeded the available stock.
The strategy involved a short-squeeze, “ultimately punishing the hedge funds and transferring a large sum of their money to individual investors.”
The suit alleges that the actions of the defendants in suspending trading in GameStop and other shares denied their customers the chance to profit from the volatility, and actively manipulated the course of the stocks.
Robinhood is accused of violating customer contracts, breaching fiduciary responsibilities, and violating laws on anti-competitive practices and price-fixing.
The company did not immediately respond to Cointelegraph’s request for comment.
A previous class-action suit filed in Manhattan on Jan. 28 makes similar claims. Disgruntled users are able to automatically join as a plaintiff through online consumer-rights platform DoNotPay.
The furor over Robinhood’s actions has seen it face the ire of Democratic Representative Alexandra Ocasio-Cortez, and reportedly shelve plans for an IPO in the wake of the PR disaster.
Hollywood studio Metro-Goldwyn-Mayer even felt that the debacle deserved a feature length dramatization and quickly snapped up the movie rights.