![]() ![]() ![]() Robinhood and other platforms are thus likely to argue that they were permitted (or perhaps required) to suspend purchases.įrom a regulatory perspective, state and federal agencies (as well as self-regulatory organizations such as FINRA) may scrutinize-minute-by-minute-the decision to suspend trading and the resulting harm to retail investors. Generally speaking, online trading platforms word their customer agreements so as to retain broad discretion to suspend trading, particularly in the event that market conditions present a risk that the company will fail to meet its regulatory requirements (e.g., rules regarding the amount of liquid assets that must be available to satisfy trading obligations). Since that time, dozens of lawsuits have been filed against Robinhood as well as other financial institutions alleged to have restricted trading. The lawsuit claimed that Robinhood had breached the terms of its agreement with customers and violated various non-contractual obligations (e.g., the duty of good faith and fair dealing). District Court for the Southern District of New York. Trading Platforms: Less than 24 hours after online trading platform Robinhood suspended purchases of GME (and other stocks), the company was named in a class action lawsuit filed in the U.S. The events surrounding WallStreetBets has given rise to a number of legal issues, a few of which will be examined here. For their part, many retail investors then abandoned the trading platforms that suspended stock purchases and moved to digital asset (e.g., Bitcoin) trading, contributing to a rise in prices within that market. Securities Exchange Commission (SEC) announced that it would be scrutinizing social media, while still others called for all trading to be halted to allow hedge funds to rebalance their positions. House Committee on Financial Services announced hearings to examine “predatory conduct” by hedge funds. In the wake of these events, members of Congress denounced the trading halt as contrary to free market principles, and the U.S. This had the effect of preventing new investors from entering the market, who cried foul. These funds collectively faced billions of dollars in losses as the market moved against them.Ĭonfronted with unprecedented market conditions, various online trading platforms aimed at retail investors-most notably, Robinhood-suspended purchases of GME shares, along with other stocks that had been discussed on WSB as potential investments. At the same time, various hedge funds and other financial institutions had taken the position that GameStop shares would decline by short selling GME stock months before. As the price climbed, other retail investors began to purchase GME as well, along with large financial institutions hoping to take advantage of the upward momentum.Īs the rise drew attention, even more investors purchased GME, making it one of the world’s most actively traded stocks. Online chatter about GameStock picked up over the months that followed, and by mid-January 2021, WSB members began to purchase GME stock en masse, leading to a rise in share prices. It has since come to light that in 2019, a contributor on WSB began to argue that GameStop was undervalued by the market. ![]() WSB was first thrust into the spotlight after the publicly traded stock for GameStop (NASDAQ: GME) rose more than 1,000% in a matter of days. At its core, WSB is simply a forum for online discussion about trading and investing. WallStreetBets (“WSB”) refers to an online chat group on the social platform Reddit (r/wallstreetbets). What is Wall Street Bets and What Happened? This client alert examines GameStop’s rise and the potential legal and regulatory response. In the days that followed, a number of other stocks were driven to all-time highs as online chatter about investments led to a market frenzy. In late January, the market was upended when shares of video game retailer GameStop suddenly climbed from roughly $30 to $347. ![]()
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