A Naperville attorney has filed a federal lawsuit against the popular online stock brokerage Robinhood after it restricted trading in GameStop, BlackBerry and other companies whose stocks surged in price as small investors do battle with Wall Street short sellers.
In his complaint, filed in U.S. District Court in Chicago, Richard Gatz alleges his two options contracts for BlackBerry decreased by almost 200% after Robinhood, which allows small investors to buy and sell stocks, restricted trading in some equities Thursday.
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Mirroring an allegation circulating widely on social media, Gatz alleges it appeared that Robinhood and other trading platforms were allowing institutional investors to continue to deal in hot stocks while shutting out the little guy.
“Plaintiff is unable to get fair market value for his options contracts and the manipulation has caused the price of the (BlackBerry stock) to fall,” the suit alleges. “If the stocks are not allowed to be trading it is likely that Plaintiff will take a financial loss solely due to (Robinhood’s) behavior and manipulation of their trading platform.”
BlackBerry is among several stocks whose value spiked in the last week as individual investors, rallied by Reddit chat rooms and other online forums, sought to press an advantage over hedge funds that shorted the stocks of companies seen as having dire futures.
The hedge funds bet against the companies by borrowing shares in them from a broker and selling them, with the idea that they would buy the shares back when the prices fell, keep the difference and return the shares to the broker. However, the funds were caught in a squeeze as small investors piled in and drove up the price. That has forced some funds to swallow huge losses.
Robinhood announced Thursday that “in light of recent volatility,” it was no longer allowing the purchase of 13 stocks, including BlackBerry, GameStop and AMC Entertainment. Numerous critics have interpreted the move as a way to protect hedge funds at the expense of small investors.
BlackBerry stock, which hit a high of $28 Wednesday after languishing in the single digits for months, was trading at about half that value Thursday afternoon.
Gatz, who is asking the court to require Robinhood to allow trading, could not immediately be reached for comment.
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