This morning the stock-trading app Robinhood blocked its users from buying shares of GameStop and other stocks that the Reddit's WallStreetBets followers had been buying as a way to punish hedge fund shortsellers. Now Robinhood is being sued for the action.
Citing extreme market volatility, Robinhood claimed in a blog post that it prevented users from buying stocks from more than a dozen companies, including GameStop, AMC Entertainment, Bed Bath and Beyond, and American Airlines. The move threw WallStreetBets users into a rage, as they scrambled to find other ways to trade. Some called for users to file complaints against Robinhood with the Securities and Exchange Commission.
Robinhood did not immediately respond to a request for comment.
The lawsuit ups the stakes in a rapidly evolving war playing out in the financial markets. On one side is are the retail investors of WallStreetBets (as well as a number of extremely wealthy major financial players), who are actively investing money in companies like GameStop—stocks of which were shorted by hedge funds. The influx of trades raised GameStop's stock by hundreds of dollars, resulting in at least one hedge fund, Melvin Capital, eating a "huge loss" on its bet that GameStop's stock price would drop. This early victory for WallStreetBets has since moved investors to throw cash at other struggling companies.
To add a bit of intrigue to the story, here's a tweet that alleges Robinhood was coerced into blocking the purchase of GameStop by the company that pays Robinhood because it also bailed out the short-sellers: