New York Attorney General Letitia James’s office is “actively reviewing” activity related to the Robinhood application and the trading of GameStop stock.
“We are aware of concerns raised regarding activity on the Robinhood app, including trading related to the GameStop stock. We are reviewing this matter,” the Attorney General said in a statement issued Jan 28.
Robinhood, was founded in 2013 by Vladimir Tenev and Baidu Bhatt. The financial services company says it’s out to “democratize finance,” and offers commission-free trading on individual companies, options, and ETFs. In addition, the company also offers cash management accounts and cryptocurrency trading.
However, the app has found itself at the center of controversy in recent days after members of a Reddit group called WallStreetBets, a speculative investing discussion forum, took aim at hedge funds making big bets against certain companies.
Members of the group subsequently banded together to drive up shares of retailer, GameStop, as well as a handful of other stocks including Nokia, cinema chain AMC, and BlackBerry.
The move caused uproar on Wall Street and saw GameStop’s value hit $30 billion at one point—more than 100 times what it was worth in August—leaving a number of Wall Street institutions, including hedge fund Melvin Capital, incurring billions of dollars in losses.
On Thursday, Robinhood subsequently began restricting trades of GameStop, AMC Entertainment Holdings, American Airlines, BlackBerry Ltd., Bed Bath & Beyond Inc., Express Inc., Koss Corp., Naked Brand Group, Nokia Corp, Trivago, and Tootsie Roll Industries, Inc. due to what it called the “recent volatility.”
In a blog post, the app said it had also raised margin requirements for certain securities. After this happened, GameStop and AMC stock dropped dramatically.
A class-action lawsuit (pdf) was later filed against Robinhood in the Southern District of New York accusing the investor app of “purposefully, willfully, and knowingly” removing the GameStop stock from its trading platform “in the midst of an unprecedented stock rise.”
The plaintiff says these actions “deprived retail investors of the ability to invest in the open-market and manipulating the open-market.”
Later in the day, Robinhood stated it will start allowing “limited buys” of GME and the other stocks starting Jan. 29.
“To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to,” it stated in a release.
The uproar has also attracted the attention of various members of Congress, including Rep. Alexandria Ocasio-Cortez (D-N.Y.), who on Thursday called for an investigation.
“This is unacceptable,” Ocasio-Cortez tweeted. “We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit. As a member of the Financial Services Cmte, I’d support a hearing if necessary.”
Sen. Ted Cruz (R-Texas) also tweeted that he was in agreement with Ocasio-Cortez.
Meanwhile, White House press secretary Jen Psaki on Wednesday said Treasury Secretary Janet Yellen and others in the Biden administration are “monitoring the situation.”
“It’s a good reminder, though, that the stock market isn’t the only measure of the health of our economy,” Psaki said.