Robinhood to Allow Purchase of GameStop and AMC After Class Action Lawsuit

By Thomas Price Friday, January 29, 2021

The stock market has seen two unexpected companies see massive rises over the past few days. As a larger and larger crowd of amateur investors from Reddit found excitement in the power of their collective strength to boost stocks for companies like GameStop and AMC, Robinhood, the popular investing app, began blocking purchase of the stocks due to “volatility.” This action enraged thousands of investors whose efforts have been a large part of the reason that the company’s stock was shooting so high in the first place. However, after significant legal drama this week, Robinhood is now allowing purchase of the stock once again, though in limited quantity.

A GameStop sign on a brick building.

GameStop’s Incredible Rise

GameStop’s stock has seen a meteoric rise over the past week that cannot be attributed to any new business or company plans, but instead two major factors: a hedge fund’s decision to short the company’s stock, and one particular Reddit subreddit, r/wallstreetbets. With several funds actively shorting the business, the many millions of Reddit users began purchasing the stock, believing it to be worth more than the hedge funds were saying, and also in spite of them.

This led to the company’s stock, which was worth less than $20 a share in January, to shoot up to well over $300 a share, where it currently sits. This has also cost those who have shorted the stock billions of dollars, prompting some to begin a buy back at a major loss simply to stop the bleeding.

However, the trading app Robinhood suddenly halted trading on GameStop and other businesses that were benefitting from the enthusiasm of Reddit investors. This move was nearly universally criticized by users, businesses, and politicians on all sides, who claimed that Robinhood’s decision was a direct method of manipulating the stock market. The business decision was certainly not going to hold up much longer, as things have already changed once again.

Robinhood to Allow Limited Buys

After significant criticism from nearly all voices and companies involved, Robinhood announced that they would once again allow limited trading of stocks for businesses such as GameStop and AMC. The decision was made by the company due to the regulations from the US Securities and Exchange Commission along with a recently filed Class-Action lawsuit filed in New York. The reignition of trading as of Friday morning has once again pushed GameStop’s stock up with shares for the business up over 60%.

When tweeting about the situation, US House of Representatives Democrat Alexandra Ocasio-Cortez said, “This is unacceptable. 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.”

Following this, Republican Senator Ted Cruz came out in full support of the statement made, showing the universal criticism and possible market manipulation that Robinhood had participated in by blocking trading.

About the Author

Headshot for author Thomas Price

Tom Price is a writer focusing on Entertainment and Sports Features. He has a degree from NYU in English with a minor in Creative Writing. He has been previously published for Washington Square News, Dignitas, CBR, and Numbers on the Boards.

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