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Robinhood is still in hot water for restricting purchases of “hot stocks,” including GameStop and AMC, in January of 2021. The company already faces a class action lawsuit that consolidates claims filed by dozens of Robinhood users who lost money when other investors were prevented from purchasing stock shares. The company is trying everything to defeat legal action, including filing a Motion to Seal their internal documents as “confidential.”
The Court recently denied this motion, allowing plaintiffs to lift all redactions in the Robinhood documents that were ordered to be made available by the Court on June 3. The information that was previously unavailable shows that despite knowing how ill-equipped the company was to handle the surge in trading activity in late January, they aggressively marketed to new users with a belief that they “were too big” to be shut down.
The Ferraro Law Firm filed an amended class action complaint on September 21, 2021 on behalf of all plaintiffs. The complaint includes new excerpts from the documents which shows just how reckless the company was during the week of January 28.
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Robinhood CEO Calls for “Ramp-Up of Marketing” Despite Being Undercapitalized by Billions of Dollars
A screenshot from an internal chat that occurred on January 28 between Robinhood Chief Operating Officer, David Dusseault, and another employee revealed a complete disregard for the Robinhood users their actions would ultimately hurt.
Referring to inquiries from the National Securities Clearing Corporation (NSCC) about deposit requirements intended to protect traders from defaults, Dusseault said confidently that Robinhood was “to [sic] big for them to actually shut us down.”
Dusseault was not the only leader who did not appear to be concerned about Robinhood’s inability to handle the sudden increase in trading. That same day, Robinhood’s CEO asked for a “ramp-up of marketing.”
These decisions weren’t made out of ignorance. Robinhood knew they were facing unprecedented trading activity, as another internal communication from that week stated, “Today was a high volume day, but stories about Reddit/WSB and stocks other than GME are heating up. We should not rule out a bigger day than today this week.”
Reckless Robinhood Actions Led to January Trading Restrictions
Robinhood leadership made the decision to lean into the wave of interest from Reddit users and others to purchase stock in GameStop, AMC, and similar hot stocks by marketing to attract even more users. They made this decision despite knowing that their company did not have the capital to adequately support these trades and would risk hurting investors in the process.
The amended complaint underscored the reckless irresponsibility of Robinhood’s decisions by stating that it was, “as if the Titanic had continued selling tickets even after hitting the iceberg.”
“Robinhood kept allowing (and encouraging) new customers to join and place further strain on its platform even after it was dangerously unstable,” the complaint alleges.
Their irresponsible decisions eventually caused Robinhood to artificially depress the value of AMC, Nokia, GameStop, and similar stocks by restricting stock purchases.
Yet in the months after these trade restrictions were imposed, causing many Robinhood users to lose money, the company claimed that the sudden interest in GameStop stock and others created “unprecedented market volatility” over which they had no control over.
Market volatility is not only always to be expected, but it was also made much worse by Robinhood’s aggressive marketing throughout that fateful week.
The Ferraro Law Firm is Helping Investors Hold Robinhood Accountable
Natalia Salas, Partner at The Ferraro Law Firm, is currently Lead Counsel over the class action claims against Robinhood that is proceeding in the Southern District of Florida. She is joined by James L. Ferraro, James L. Ferraro, Jr., Sean A. Burstyn, Daniel J. DiMatteo, and Angelica Novick.
The Robinhood case is just one example of how our law firm stands up for small investors and consumers against large corporations who use their size and wealth to take advantage of them. For all of the recent updates on the Robinhood litigation, read our latest blog posts.