Should there be a Lawsuit against Robinhood in 2021?

“Starting tomorrow (this Friday), we plan to allow limited purchases of these securities. We will continue to monitor the situation and it is possible that we will make the necessary adjustments”, announced the broker hours after having blocked the purchases of a series of especially volatile stocks in recent sessions, in addition to having expanded the margins set to trade certain securities.

Robinhood partially reversed its decision to restrict trading in “volatile” stocks, albeit to a limited extent.

This Friday, the shares of GameStop bounce 75% to $ 340, in a wheel that is very negative in Wall Street indicators, with 2% losses at 2:40 p.m. from Buenos Aires.

In response to the volatility unleashed on Wall Street in recent sessions by the revolt that has led a multitude of retail investors organized through WallStreetBets against large bearish funds, Robinhood decided last Thursday to restrict trading in securities of American Airlines (AAL), BlackBerry (BB), Best Buy (BBY), Castor Maritime (CTRM), Express (EXPR), KOSS Corporation (KOSS), Naked Brand (NAKD), Nokia (NOK), Sundial Growers (SNDL), Tootsie Roll (TR) y Trivago (TRVG), allowing only to close positions.

Vladimir Tenev, co-founder of Robinhood, assured on Thursday that the app’s decision to restrict operations in these securities responded to the platform’s financial obligations as a stock market firm, including the net capital requirements set by the SEC (the regulatory body of the securities market) and clearinghouse deposits.

The CEO of Robinhood assured that the restrictions respond to requirements that exist to protect investors and markets

“Some of these requirements fluctuate based on the volatility of the markets and can be substantial in the current environment,” he explained. “These Requirements exist to protect investors and markets, and we take our responsibility to comply seriously, including through the measures we have taken. To be clear, this decision was not made in the direction of any market maker nor from other market participants”, said the businessman.

Tenev warned that Robinhood cannot control the ultra-fast spread of information and misinformation that takes place on social media.

On the other hand, according to sources familiar with Financial Times, the broker was impelled to seek the support of investment banks, among which would be JPMorgan, Goldman Sachs, Morgan Stanley, Barclays y Wells Fargo, to ensure access to around USD 1 billion in credit facilities to strengthen its financial position amid the turmoil. In this sense, the platform highlighted that this injection of funds represented “a strong sign of confidence.”

Investor anger and political repercussions

The decision of the online broker unleashed anger among retail investors, leading to a group to file a lawsuit against Robinhood for alleged manipulation of the market, as well as between politicians of different stripes.

In fact, the incoming chairman of the U.S. Senate Banking Committee, the Democrat Sherrod Brown, announced yesterday the upcoming holding of a hearing in the House to address the situation on Wall Street and the implementation of the rules by the Securities Commission (SEC) and Congress.

“People on Wall Street only care about the rules when they are the ones who are hurt. American workers have known for years that the Wall Street system does not work; they have been paying the price. It’s time for the SEC and Congress to make the economy work for everyone, not just Wall Street,” he announced.