Recently, millions of amateur investors put the squeeze on two hedge funds that bet GameStop Corp.'s stock would fall. In a seemingly opportunistic and indiscriminate fashion, these amateur investors caused GameStop Corp.'s market value to increase over $22 billion in mere days.
However, the fun came to a grinding halt when brokers, such as Robinhood, restricted users from purchasing shares targeted, and inflated, by the amateur investors. On January 28, 2021, Robinhood was named as a defendant in two federal lawsuits where users alleged that the trading platform caused them to sustain losses by forbidding them from trading certain stocks.
It appears that the plaintiffs in these cases have an uphill battle for a couple of reasons. First, trading platforms likely have broad discretion in determining when or how to limit certain activity. Second, Robinhood's Customer Agreement has a provision which reads “I understand Robinhood may at any time, in its sole discretion and without prior notice to Me, prohibit or restrict My ability to trade securities.”
While an interesting and abnormal series of events, it is important to know exactly what you are agreeing to when signing a contract or user agreement. Especially, as a business, it is crucial that your agreements protect you from unanticipated vulnerability.
This article is for informational purposes only and does not constitute legal advice.