Court Upholds Robinhood’s Motion to Dismiss
A significant win for Robinhood Markets, the US appeals court has quashed the class-action lawsuit, emphasizing Robinhood’s legal right to enforce trading restrictions. The lawsuit, initiated by 16 investors in September 2021, criticized Robinhood for preventing meme stock purchases during the notorious hedge fund short-squeeze.
Robinhood’s Defense Proves Persuasive
Defending its stance in January 2022, Robinhood argued the lack of valid claims from the plaintiffs. The investors, undeterred, carried their grievance to the appeals court in 2023, only to be met with another disappointment.
Court’s Perspective: Legal Rights vs Public Opinion
US Appellate Court Judge Britt Grant provided clarity on the verdict, asserting that while Robinhood may have faced disapproval in the “court of public opinion,” its obligations were purely legal. Robinhood’s actions, she added, were well within its legal boundaries, as there was no duty to shield investors from mere economic losses.
The Origin: Reddit’s /wallstreetbets and The Massive Short Squeeze
The heart of this fiasco lies with the /wallstreetbets subreddit, whose users strategically targeted stocks being heavily shorted, leading to skyrocketing share prices for companies like GameStop, which soared from $0.86 to a staggering $86 within months.
Robinhood’s Financial Standing
Diverging from the lawsuit, Robinhood’s recent Q2 results paint a picture of resilience. For the first time since its public debut, the platform reported profits. However, there has been a dip in its crypto revenue, marking a decline of 18% to $31 million. The firm’s crypto asset investments of $11.5 million remained stable.
