Los Angeles, CA. January 28, 2021 ………. It started two days ago with Reddit users organizing on thread r/WallStreetBets to collaboratively speculate on shares of dwindling gaming store company Game Stop Corp.(NYSE: GME).
Earlier today, a class action lawsuit was filed against Robinhood Financial LLC for negligence and breach of fiduciary duty, among other claims. NELSON v. ROBINHOOD FINANCIAL LLC et al, 1:21-cv-00777.
Below are some of the allegations mentioned in the Complaint :
That Robinhood deprived their customers of the ability to use their service, pulled GME from their app. Meaning, retail investors could no longer buy or even search for GME on Robinhood’s app.
That by failing to respond at all to customers’ placing timely trades—and outright blocking customers from trading a security—Robinhood has breached these, among other, obligations and caused its customers substantial losses due solely to its own negligence and failure to maintain adequate infrastructure.
What will happen next, will the SEC halt trading?
Understanding the regulatory response is key to figuring out what might happen next. According to the SEC Investor Bulletin, the SEC can actually suspend trading of a certain stock when “Questions about trading in the stock, including trading by insiders, potential market manipulation,
and the ability to clear and settle transactions in the stock”. In this case, the frenzied buy behavior might provide the SEC the opportunity to halt the trading of Game Stop without forewarning investors.
In addition, Game Stop filed a Schedule 13 G on the EDGAR Filing System earlier today. This requires that the company disclose anyone who has more than a 5% stake. This may be an early sign that officials are trying to find out the causes and shareholders who stand the most to lose.
How this episode in Game Stop’s history will play out is yet to be determined. However, it is almost certain that legislative and regulatory action will define new precedents and facilities to deal with market manipulation caused by the masses in the future.
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