Court Defends Robinhood’s Actions during Meme Stock Mania

<p>An appeal
court in the United States has dismissed certain claims of harm made against
Robinhood by a group of investors over trading restrictions imposed by the trading
platform during the meme stock frenzy that happened three years ago, Reuters
reported today (Thursday). </p><p>Robinhood
Prevails in Court</p><p>In January
2021, a large group of amateur traders on the subreddit channel,
WallStreetBets, pumped the price of certain stocks such as Gamestop, AMC
Entertainment and Blackberry, causing big losses for hedge funds who shorted
the stocks, or bet that their prices would fall. However, Robinhood at the peak
of the market <a href="https://www.financemagnates.com/forex/brokers/interactive-brokers-robinhood-move-to-curb-gamestop-frenzy/" target="_blank" rel="follow">restricted trading of
several of the meme stocks</a>, defending the move as a <a href="https://www.financemagnates.com/terms/r/risk-management/">risk management</a>
decision. </p><p>The stock
mania resulted in Robinhood <a href="https://www.financemagnates.com/forex/brokers/robinhood-banks-1-billion-emergency-cash-after-thursday-chaos/" target="_blank" rel="follow">raising more than $1
billion</a> in
additional emergency cash. It also forced several other
brokers, including TD Ameritrade, IG Group and Charles Schwab, <a href="https://www.financemagnates.com/forex/brokers/interactive-brokers-robinhood-move-to-curb-gamestop-frenzy/" target="_blank" rel="follow">to ban trading on the
stocks</a> and
derivatives that soared. </p><p>However, following the restriction, disgruntled traders dragged Robinhood to court,
alleging market manipulation by the platform. They claimed that due to
Robinhood's actions, they missed out on some of the most significant stock
market surges ever recorded.</p><p>However, in
a unanimous decision, which upholds the judgment of a federal court passed in November 2021, the 11th US Circuit Court of
Appeals in Atlanta stated that Robinhood's standard client contract expressly
allowed the limitations. This indicates that Robinhood was not obliged to
process every trade request, the court said. </p><p>Additionally, the court rejected the allegations that Robinhood was careless in
preventing investor losses or did not ensure the proper functioning of its
essential systems. Specifically, Circuit Judge
Britt Grant acknowledged that while Robinhood's decision to restrict the buying
of meme stocks may have hurt its public image, the court is
only concerned with whether Robinhood fulfilled its legal <a href="https://www.financemagnates.com/terms/o/obligations/">obligations</a>. </p><p>Robinhood
vs. Massachusetts</p><p>In a
separate development, a lower court last year <a href="https://www.financemagnates.com/forex/brokers/gamifying-trading-massachusetts-court-rules-in-favor-of-robinhood/" target="_blank" rel="follow">ruled in favour of
Robinhood</a> in a case
in which Massachusetts Secretary of State, Bill Galvin, accused the broker of
breaking its fiduciary duty rule by encouraging inexperienced traders to place
risky trades. However, Massachusetts’ securities watchdog <a href="https://www.financemagnates.com/forex/gamifying-trading-robinhood-defends-case-against-regulator-at-top-court/" target="_blank" rel="follow">is now appealing the
case</a> at the
Supreme Judicial Court of Massachusetts, Finance
Magnates reported.</p><p>CFI welcomes MENA's marketing head; FCA cancels Matrix's license; <a href="https://www.financemagnates.com/forex/news-nuggets-10-august-cfi-welcomes-menas-marketing-head-fca-cancels-matrix-license/" target="_blank" rel="follow">read today's news nuggets</a>.</p>

This article was written by Solomon Oladipupo at www.financemagnates.com.