By Merrin A. Overbeck
Many individuals have been describing January 2021 by identifying the major events that happened on each Wednesday that month, specifically by referring to the “Four I’s”: the Insurrection that occurred when supporters of former President Donald J. Trump breached the Capitol building, the beginning of Impeachment proceedings when Democrats pushed through a non-binding resolution calling on then-Vice President Mike Pence to invoke the 25th Amendment to declare former President Trump unfit after his incitement of the previous week’s insurrection, the Inauguration of President Joseph R. Biden, and finally “investments” to refer to the dramatic and rapid increase of the value of various stocks due to individual investors organizing on an online forum. This blog post will discuss the intersection of law and technology as it relates to the rapid increase of the value of GameStop stocks.
On January 27, 2021, millions of small investors invested in companies, such as GameStop and AMC, leading to dramatic increases in the values of their stocks. Small investors, including millions of amateur traders, organized themselves on a Reddit discussion board to take this opportunity to grow their own wealth while also teaching large hedge funds on Wall Street a lesson – a use for social media that has not occurred on such a scale prior to this event. Many of these retail investors decided to do this because hedge funds and other professional money managers were shorting GameStop’s shares, essentially betting that its stock would continue to decline in value. The retail investors, by buying shares of these stocks and essentially pushing against these hedge funds, increased GameStop’s market value to over $24 million from $2 billion in a matter of days. This behavior by retail investors led to hedge funds losing billions of dollars, and thus led to retail brokerage firms such as TD Ameritrade and Robinhood to restrict the trading of GameStop, AMC, and other stocks based on this unprecedented behavior.
In response to this restriction of trade on the Robinhood platform, at least 30 parties across 10 states have filed lawsuits in federal court against the stock-trading application, including class-action lawsuits in the Southern District of New York and the Middle District of Florida in Tampa, based on an allegation that Robinhood’s actions “were done purposefully and knowingly to manipulate the market for the benefit of people and financial institutions who were not Robinhood’s customers.” According to Michael Taaffe, one of the attorneys working on the class action lawsuit in Florida, “Robinhood’s negligent failures are all the more serious given the company’s history of such breakdowns including last year during the biggest single-day point gain in the history of the Dow Jones Industrial Average…The restrictions put in place by Robinhood fly in the face of the principles the company promoted to its own customers through its marketing materials and agreements…In short, Robinhood breached its obligations and was negligent in allowing this to happened – all at the expense of its customers.” At this point in time, it is not clear whether these lawsuits will be successful because Robinhood’s terms of service allows the company to block, cancel, and restrict transactions, and even delete user accounts. Additionally, the user agreement contains an arbitration clause. However, many are optimistic that the lawsuits will be successful, citing to recent settlements supporting the possibility of a court finding that Robinhood’s terms of service might not necessarily apply to its actions.
However, unhappy customers are not the only threat that Robinhood and other retail brokerage firms face.Robinhood’s decision was criticized by various lawmakers such as Representative Alexandria Ocasio-Cortez (D-NY), who sits on the Financial Services Committee, and others, calling to investigate the decision to restrict trading for its users.
 See Matt Phillips and Taylor Lorenz, ‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game (Jan. 27, 201), N.Y Times, https://www.nytimes.com/2021/01/27/business/gamestop-wall-street-bets.html
 Fernando Alfonso III, Class-action lawsuit filed against Robinhood following outrage over GameStop stock restriction, CNN.com (Jan. 29, 2021), https://www.cnn.com/2021/01/28/investing/lawsuit-robinhood-gamestop-wallstreetbets/index.html; see also Adi Robertson, Robinhood is facing dozens of lawsuits over GameStop stock freeze, The Verge (Feb. 1, 2021), https://www.theverge.com/2021/2/1/22254656/robinhood-gamestop-stonks-trade-freeze-class-action-lawsuits
 Dan Trujillo, Tampa firm files class-action lawsuit against Robinhood over GameStop trading restrictions, ABC Action News (Feb. 1, 2021), https://www.abcactionnews.com/money/consumer/tampa-firm-files-class-action-lawsuit-against-robinhood-over-gamestop-trading-restrictions
 See Alicia Adamczyk, Investors are using this app to automatically join the Robinhood class-action lawsuit amid GameStop chaos, CNBC.com (Jan. 29, 2021), https://www.cnbc.com/2021/01/29/app-robinhood-gamestop-class-action-lawsuit.html
 See Chime Digital Bank Outage Class Action Settlement, Top Class Actions (Dec. 7, 2020), https://topclassactions.com/lawsuit-settlements/money/banking-news/chime-digital-bank-outage-class-action-settlement/
 See Karissa Bell, Robinhood hit with class action lawsuit after it restricts GameStop stock, Yahoo! Finance (Jan. 28, 2021), https://finance.yahoo.com/news/robinhood-class-action-lawsuit-gamestop-191704848.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAB2P7fJHvlSg91XArj8uaUQGGbcDV5t8NigvZorVDSt80Ds9IZtv96UItaC0V0gRnWrdqsUgiyay74DfukQrS7rN2mwv83WRS7G2Nga1RV1zMHKLlUVqw_mfU78LDAFhTYtxX-Htfzmo1UMEf2zzR51glaEnryCH1hJ2P-zMSmSS (explaining that other companies such as Interactive Brokers, Webull, and TD Ameritrade also imposed similar restrictions).
 See Robertson, supra note 5.
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