The GameStop Stock and Robinhood: A Rollercoaster Ride
Robinhood, the trading platform, found itself in hot water during the GameStop stock frenzy in January 2021. While it unintentionally helped inflate the stock bubble, it was not the root cause of the problem. Here are the key points:
- GameStop’s stock price was below $5 in early January 2021.
- Within twenty days, it skyrocketed to over $120, setting a new all-time high.
- The price eventually collapsed below $10, then recovered above $85.
- Robinhood was called to testify before the US Congressional House Committee on Financial Services to determine its role in the bubble.
- In July 2021, Robinhood was fined $70 million by the US Financial Services Regulatory Authority for neglecting user protection.
Robinhood’s Controversial Actions
- 16 investors filed a class action lawsuit against Robinhood, alleging the platform prevented them from buying GameStop stock during the buying campaign.
- The accusation was market manipulation, as the platform suspended trading due to strong manipulation organized via Reddit.
- The court dismissed the class action, stating Robinhood had the right to restrict trading and refuse transactions.
- An appeal to the Supreme Court seems unlikely.
- Exploiting pump-and-dump campaigns often leads to losses for late participants.
Hot Take: While Robinhood faced backlash for its actions during the GameStop frenzy, the court ruling in its favor suggests it had the legal right to protect itself and restrict trading. Despite the controversy, attempts to manipulate the market generally benefit organizers at the expense of late participants.
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