The Robinhood Lawsuit- A David vs. Goliath Saga

By: Fabian Garcia

The stock trading and investing application, Robinhood, has been the topic of conversation amongst investors throughout the past year. Specifically, Robinhood’s popularity peaked as COVID-19 swarmed the nation.[1] Although there are various factors impacting the movement of stocks or other securities, we have learned that Robinhood traders can sometimes hold the power to move the market.[2]

A few weeks ago, GameStop ($GME), an omni-channel video game retailer, saw its stocks reach an unbelievable price. On January 4, 2021, GME was trading at around $17 per share. Then on January 27, 2021, the stock reached a whopping $347 per share. Many wealthy hedge funds were impacted negatively from this once-in-a-lifetime occurrence. In response, some retail brokerages, including Robinhood, restricted trading in GME and other stocks that were behaving in a similar way.[3] However, these restrictions raised various legal questions which will be brought forth in South Florida.

Many criticize Robinhood because they claim that its interface makes it too easy for people to enter into transactions they do not understand.[4] The main contention is that Robinhood treats investments in a similar fashion to social media.[5] For example, the application provides the user with emojis and confetti every time a sale or purchase is made.[6] The application however has recently announced that it will be removing this feature from its platform in efforts to address the critics as it moves forward with plans to go public.[7]

Nevertheless, most of the lawsuits filed against Robinhood are on behalf of users who claim they suffered financial setbacks and missed opportunities as a result of Robinhood’s restrictions on the amount of GME stocks an investor could buy.[8] In response to the allegations, Robinhood said that the restrictions were due to the “amount required to deposit with trading clearinghouses, which reached hundreds of millions of dollars because of the volatility of the stock price.”[9] There could have been legitimate reasons as to why Robinhood restricted trading, but many individuals believe that it was Robinhood protecting the wealthy from losing more money.

The class action accused Robinhood of breach of contract, breach of fiduciary duty, breach of implied warranty of merchantability, and accused other financial institutions of tortious interference with business relationships and contract.[10] The complaint also alleges that the defendants committed negligence, conspiracy, attempted monopolization of the stock market, violated Florida’s deceptive and Unfair Trade Practice Act and breached an implied covenant of good faith and fair dealing.[11]

The upcoming hearing in the Southern District of Florida is a great opportunity to clarify what investment platforms can and cannot do. The court should hold investors responsible for their own actions when it comes to bad investments. The fact that Robinhood chooses to make its interface colorful or interactive should not be a factor in holding them liable for the investor’s losses. However, placing those restrictions on trading should be viewed with higher scrutiny, because this was a deliberate action made by Robinhood. This is very different from the losses investors experience every day due to market volatility. This is going to be an interesting case where the court will have to weigh the ethical repercussions of such restrictions against investor freedom.

This case is highly important as well because it essentially boils down to simple retail investors seeking justice for what they believe to have been market manipulation. Giving everyone an opportunity to make the most out of their investments seems like a reasonable outcome to achieve, but it may present some unexpected difficulties.

[1] Annie Massa and Sarah Ponczek, Robinhood’s Addictive app Made Trading a Pandemic Pastime, Bloomberg Businessweek (Oct. 22, 2020),


[2] Id.


[3] Maggie Fitzgerald, Robinhood Restricts Trading in GameStop, Other Names Involved in Frenzy, CNBC (Jan. 28, 2021),


[4] Cyrus Farivar, Gambling Addiction Experts See Familiar Aspects in Robinhood App, NBC News (Jan. 30, 2021),


[5] Caitlin McCabe, Robinhood to Remove Controversial Digital Confetti From Trading App, The Wall Street Journal (March 31, 2021),


[6] Id.


[7] Id.


[8] Megan Leonhardt, Robinhood Now Faces Roughly 90 Lawsuits After GameStop Trading Halt – Here’s How Customers Might Actually Get their Day in Court, CNBC News (Feb 17, 2021),


[9] Id.


[10] Raychel Lean, Robinhood Takes from Poor to Give to Rich? Miami Firm Leads Florida Class Action, Daily Business Review (Feb. 1, 2021),


[11] Id.

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