GameStop’s astounding saga captivated America this week, as it rocketed to new heights fueled by starry-eyed investors from Reddit’s WallStreetBets who’ve waged a bootstrapped war against the Wall Street establishment. The video-and-computer-game vendor’s stock soared from $40 per share in mid-January to, at one point, $470 per share this Thursday, flying in the face of its many short bets from financial elites.
But while WallStreetBets was looking ahead to what meteoric rise tomorrow would bring, a number of online brokers favored by at-home investors moved to restrict trading on stocks exhibiting “recent volatility,” putting an abrupt end to GameStop’s rally.
Popular zero-fee trading platform Robinhood said Thursday it would block purchasing of shares for eight securities including GameStop, AMC, and Bed Bath & Beyond, all widely shorted stocks that became recent targets of WallStreetBets campaigns. Its peer Interactive Brokers said it would do the same for a separate list that also included GameStop and AMC.
Investors were, however, still allowed to sell off their assets.
The move seemed to succeed in bringing the high-flying stocks back down to earth, as GameStop has already dropped more than 30% in midday trading, but it drew fast and furious backlash. Rapper Ja Rule, for instance, tweeted that it was a “crime” and claimed that “Wall Street crushes the American dream.”
Yo this is a fucking CRIME what @RobinhoodApp is doing DO NOT SELL!!! HOLD THE LINE… WTF ????
— Ja Rule (@jarule) January 28, 2021
Outrage circulated on web forums, and Robinhood has already been hit with a class-action lawsuit accusing it of “purposefully, willfully, and knowingly removing the stock ‘GME’ from its trading platform in the midst of an unprecedented stock rise, thereby depriving retail investors of the ability to invest in the open-market and manipulating the open-market.”
The move has also prompted scrutiny from Congress, as members on both sides of the aisle are calling for investigations into the trading restrictions and whether they constitute market manipulation. Democratic representative Alexandria Ocasio-Cortez of New York recommended a hearing, tweeting that it was “unacceptable.”
This is unacceptable.
We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.
As a member of the Financial Services Cmte, I’d support a hearing if necessary. https://t.co/4Qyrolgzyt
— Alexandria Ocasio-Cortez (@AOC) January 28, 2021
Similar messages came from Democratic representatives Rashida Tlaib of Michigan and Ro Khanna of California, who noted that the move benefits billion-dollar financial firms that had shorted GameStop and were losing chunks of cash as the stock rallied on, but does so at the expense of the individual investor.
This is beyond absurd. @FSCDems need to have a hearing on Robinhood's market manipulation. They're blocking the ability to trade to protect Wall St. hedge funds, stealing millions of dollars from their users to protect people who've used the stock market as a casino for decades. https://t.co/CGkJxVfzkv
— Rashida Tlaib (@RashidaTlaib) January 28, 2021
Yes @aoc. We need an investigation into RobinhoodApp’s decision and who influenced that. And this shows the need for a financial transaction tax on hedge fund shorting and SEC regulations on short selling practices. https://t.co/mYX8Ab3JwH
— Ro Khanna (@RoKhanna) January 28, 2021
And Republican senators Ted Cruz of Texas and Marsha Blackburn of Tennessee expressed criticism by calling for, in true Republican style, a freer market.
Free the traders on @RobinhoodApp.
— Marsha Blackburn (@VoteMarsha) January 28, 2021
Cruz also backed Ocasio-Cortez’s call for a hearing, to which she responded, “you almost had me murdered 3 weeks ago so you can sit this one out,” and then she called on him to resign.
Reached for comment, a Robinhood spokesperson referred Fast Company to its earlier blog post but did not respond to a follow-up question about a potential investigation from Congress.
A spokesperson from Interactive Brokers also referred us to its earlier statement.