Robinhood defeats investors' appeal over meme stock frenzy
Reuters
Published Aug 10, 2023 12:25
Updated Aug 10, 2023 14:20
By Jonathan Stempel
(Reuters) - Robinhood (NASDAQ:HOOD) Markets on Thursday defeated an appeal by investors over the stock trading platform's decision to restrict purchases of 13 "meme stocks" during a January 2021 frenzy that squeezed hedge funds.
Customers who owned stocks such as AMC Entertainment, the former Bed Bath & Beyond (OTC:BBBYQ) and GameStop (NYSE:GME) claimed in the proposed class action that they lost money because Robinhood stopped them from buying more as social media-fueled trading drove prices skyward.
Other holders of the stocks also said they were harmed, because the restrictions eventually caused prices of their stocks to fall.
But in a 3-0 decision, the 11th U.S. Circuit Court of Appeals in Atlanta said Robinhood's standard customer agreement specifically authorized the restrictions, and did not suggest that Robinhood would accept all trade orders.
The court also dismissed claims that Robinhood was negligent in failing to keep investors from losing money, or failed to ensure that its "mission critical systems" would work properly.
"When Robinhood restricted its customers' ability to buy meme stocks, it took a sizable - and perhaps justifiable - hit in the court of public opinion," Circuit Judge Britt Grant wrote. "But in this court, Robinhood is only accountable for specific legal duties."
Lawyers for the plaintiffs did not immediately respond to requests for comment. Robinhood and its lawyers did not immediately respond to similar requests.
Thursday's decision upheld a November 2021 ruling by Chief Judge Cecilia Altonaga of the Miami federal court.
The meme stock frenzy has been fueled in part by investors using online forums such as Twitter and the subreddit WallStreet Bets.
It led to a "short squeeze" that caused big losses for hedge funds betting stock prices would fall, and what Robinhood called "outsized regulatory collateral calls" for the Menlo Park, California-based company and other brokers.
Robinhood is also being sued by investors who sold nine meme stocks at a loss in late January and early February 2021.
Shares of Robinhood were up 3 cents at $10.83 at midday on Thursday.
The case is In re January 2021 Short Squeeze Trading Litigation, 11th U.S. Circuit Court of Appeals, No. 22-10669.
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Written By: Reuters
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