A federal judge has dismissed a lawsuit against the brokerage app Robinhood that was filed by retail traders who claimed they lost billions after they were stopped from selling so-called “meme stocks” that were artificially inflated by internet chat groups.
Chief US District Judge Cecilia Altonaga of Miami federal court ruled that the retail investors could not sue Robinhood for negligence and breach of fiduciary duty because of the terms of agreement that each customer must accept upon registration.
The customer agreement that Robinhood clients sign stipulates that the company “may at any time, in its sole discretion and without prior notice to me, prohibit or restrict my ability to trade securities.”
In her 66-page opinion, Altonaga wrote that while traders were “gravely disappointed” by the plunge in meme stock prices that occurred after trades were restricted, “the law does not afford relief to every unfulfilled expectation,” according to Reuters.
Altonaga previously dismissed a lawsuit alleging that Robinhood and other brokerages colluded with Citadel Securities LLC to halt a “short squeeze” that was causing billions of dollars of losses for hedge funds that had bet against the stocks retail investors championed.
Citadel Securities and Robinhood have denied those allegations.
Robinhood was hit with several lawsuits after day traders using the app were unable to unload “meme stocks” whose value plummeted after the commission-free app restricted trading. Those lawsuits remain pending.
Robinhood claimed at the time that it halted trading because it was forced to by Wall Street rules.
The investors alleged that Robinhood had courted customers with promises of expanding access to the stock market, but was indifferent to known risks tied to increased demand.
A year ago, thousands of retail investors who were roaming Reddit chat rooms cooked up a plan to buy up stocks of struggling companies like the video game retailer GameStop and movie theater chain AMC.
The scheme sent the stock prices soaring, with GameStop rising by nearly 1,800% — dealing a severe blow to hedge funds and professional investors who had shorted those stocks.
A day after GameStop reached its peak on Jan. 27 of last year, Robinhood started restricting trading in the meme stocks, which caused the value of those shares to nosedive.
Robinhood said in a statement on Thursday that “a new generation turned the act of investing into a mass movement that revealed the power of individual investors.”
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