Robinhood Takes Away Some Investors' Rights to Trade on Its Platform

In recent weeks, Robinhood placed trading restrictions upon certain highly volatile stocks, including GameStop and AMC Entertainment. The angry Robinhood investors felt there were breaches of contract and fiduciary duty in preventing platform users from buying and selling certain stocks. Shares of GameStop went from $20 in early January to nearly $350 later in the month and more recently as low as $46. The share prices of GameStop seem to be more related to trading speculation and possibly manipulation than the company’s business performance. While some individuals were making gains as they were driving the share price up, some institutional investors that were shorting the stock, essentially betting that it would go down, were losing huge sums of money.

Individual lawsuits filed against Robinhood accuse the company of depriving them of the use of their trading platform and the associated gains from trading. Another lawsuit accuses the company of using "false and misleading" tactics to drive certain stock prices down to benefit their institutional partners.

Robinhood has contended that its trading restrictions on specific stocks were a result of Securities and Exchange Commission (SEC) capital reserve requirements and a significant increase in related deposit requirements from clearinghouses to cover their trades. In a blog post, Robinhood responded, "To be the trusted and responsible platform you can rely on, Robinhood has to operate within the existing regulatory environment. We have to make progressive strides while simultaneously complying with laws and regulations outside of our control."

The extreme volatility of these stocks has generated concern from Treasury Secretary Janet Yellen who will be reviewing the activities along with other regulators. The SEC is conducting a review of brokerage firm activities that impact trading of highly volatile stocks. Congressional members are asking regulatory agencies to take action to better understand and respond to the newer business models that have different risks than past investment firms posed.