Colorado man sues brokerages that froze buying of GameStop, AMC other “meme” stocks

A Colorado man has filed a potential class action lawsuit against brokerage firms including Robinhood and Charles Schwab alleging the companies’ decision to freeze buying of so-called “meme stocks” like GameStop and AMC Entertainment on Thursday was blatant market manipulation that caused him and other investors to suffer massive losses.

Chance Daniels holds accounts with established brokerages like Schwab and TD Ameritrade as well as free online trading platforms Robinhood and Webull, working as a day trader, according to his attorney Kevin Hannon of Denver’s Hannon Law Firm.

On Friday, Hannon filed a suit in U.S. District Court in Denver on behalf of Daniels and “all others similarly situated” against the firms for actions they took on Thursday.

The suit alleges that the brokerages intentionally created a situation where only hedge funds and other institutional investors could benefit from trades involving a variety of stocks that have become the darlings of amateur investors after gaining traction on the Reddit message board r/wallstreetbets.

The best example is GameStop, a struggling retail chain best known for buying and selling used video games that saw its stock price jump from less than $20 a share in early January to more than $400 in a matter of weeks when scores of investors jumped in. That meteoric rise cost some hedge funds that had investing heavily in positions betting on GameStop’s value to fall — “shorting” the stock, in industry-speak — billions earlier this week.

On Thursday, Robinhood, Schwab, TD Ameritrade and Webull all froze new retail purchases of GameStop stock as well stock for other companies popular with r/wallstreetbets community including BlackBerry, Nokia and movie theater chain AMC.

Doing so, “in the midst of an unprecedented stock rise thereby deprived retail investors of the ability to invest in the open-market, thereby manipulating the open-market,” the suit says. “Numerous retail investors were forcefully stopped out of their positions by Defendants at incredibly low prices as a result of these attacks, suffering massive financial losses.”

An attachment to the suit indicated Daniels’ portfolio lost more than $71,000 in value on Thursday.

The suit provided an alleged motive for the brokerages’ actions: Pleasing large institutional investment funds that either already are or may eventually be investors in the companies.

Thursday’s buying freeze sparked outrage across the retail investor community.

Matt Watkajtys, a Denver web developer who started trading on Robinhood last April with money from his stimulus check, told The Denver Post, “I’m furious at the system. We’re no longer in a free market basically.”

It caught the attention of leaders on opposite ends of the political spectrum as well. Both U.S. Rep. Alexandria Ocasio-Cortez, a democratic socialist from New York, and U.S. Sen. Ted Cruz, a conservative Republican from Texas, publicly criticizing the brokerage firms’ actions.

Robinhood, in a blog post on its website Thursday, said the decision to temporarily limit trading on certain stocks was “a risk-management decision, and was not made on the direction of the market makers we route to,” referring to companies like Citadel Securities, which is also named in Daniels suit though not as a defendant.

Robinhood opened up limiting buying of GameStop on other stocks on Friday but is facing a substantial backlash from users as it prepares for a potential initial public stock offering of its own.

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