The attorney general of New York is looking into allegations of unfair dealing by the Robinhood trading app over investments in GameStop stock.
Letitia James’s office is “reviewing” the issue, she announced Thursday.
“We are aware of concerns raised regarding activity on the Robinhood app, including trading related to the GameStop stock,” she said in a statement. “We are reviewing this matter.”
Robinhood restricted its users Thursday from purchasing GameStop stock, claiming that it did so because of “recent volatility.”
When asked whether the decision to do so was based on a request from the Securities and Exchange Commission, Robinhood CEO Vlad Tenev told CNBC, “We absolutely did not do this at the direction of any market maker or hedge fund or anyone we route to or other market participants. The reason we did it is because Robinhood is a brokerage firm. We have lots of financial requirements, including SEC net capital requirements and clearing house deposits.”
He added, “Some of these requirements fluctuate quite a bit based on volatility in the markets, and they can be substantial in the current environment where there’s a lot of volatility and a lot of concentrated activity in these names that have been going viral on social media.”
Purchasing GameStop stock has become a viral trend, with Reddit users encouraging each other to invest. GameStop stocks have been frequently shorted by institutional investors as a way to turn a profit. With the increase in GameStop stock purchases, their value has gone up significantly, causing hedge funds to lose massive amounts of money.
Robinhood has had to take out credit in the wake of the trades, according to Bloomberg. It’s had to tap at least several hundred million dollars, one source said.
Following the restriction, a class-action lawsuit against the company was introduced, accusing Robinhood of violating “the implied covenant of good faith and fair dealing.”
“Robinhood breached its fiduciary duties to Plaintiff and Class members by, among other things, failing to disclose that its platform was going to remove GME purchases in a timely manner … removing GME for its own pecuniary benefits … and that Robinhood failed to exercise trades and actions requested by customers in a complete and timely manner,” the lawsuit stated.
