In a headline that couldn’t be more 2022, a US judge has deemed that popular stock trading APP Robinhood must face market manipulation claims from the 2021 “meme stock” incident that affected millions of retail investors last year.
If perhaps you were living under a rock for most of 2021, you may have missed what many have deemed the biggest breach of trust by any market facilitator since the beginning of the modern stock market. In early 2021, the GameStop stock (GME) short squeeze incident saw a group of retail investors uniting on popular trading APP Robinhood to drive up the stock prices of struggling companies to score profits for themselves, and more importantly, to stick it to the establishment.
For those unfamiliar with the term, “shorting” a stock means to bet that the price of a particular security will go down in the future. Short sellers borrow shares of the stock they hope to sell from somebody else, sell the stock, and then buy it back at a lower price and return the shares to the person they borrowed them from. If the stock price does go down, the short seller profits.
However, if the stock price goes up instead, the short seller’s bet has failed and they can lose their entire bet.
The masses unite!
Millions of users, led by the subreddit Wallstreetbets, noticed that large institutions had massive short positions against GameStop and unified together to drive the price up and liquid these big, bad institutions. The plan was working flawlessly and the price of GameStop began to soar.
The majority of these users, turned to the Robinhood, due to its ease of access and zero trading fees and began ramping up the price of GME using simple taps of their fingers, betting on the continued explosion of the price and the hope of liquidating these institutions while also hoping to realize a profit themselves at some point.
Robinhood then did something unprecedent
In the midst of the price explosion, Robinhood turned evil villain (allegedly) and decided to halt the trading of the GameStop stock on their app. To take it even further, at one point Robinhood disabled the ability to purchase GME, but still allowed users to sell the stock — how convenient..
Foul on the play!
Millions of users on social media immediately began to call foul, appalled at Robinhood’s blatant (alleged) market manipulation.
So how long until all of the executives of @RobinhoodApp are in jail?
— Professor (@Super_Professor) January 30, 2021
Imagine you own a stock, and you are betting on it’s price going up, but one of the largest (if not the largest in that moment) decided to only let users sell and drive the price down — you’d be pretty pissed right?
People were pretty upset and rightfully so. Claiming foul on the play with no remedy from Robinhood in sight, users decided to do the only thing they could at the time and “vote with their wallet” — uninstalling the app and taking their business elsewhere — causing Robinhood’s revenue and stock price to plummet (take that!)
Robinhood’s transaction-based revenue at their last public filling ( the second quarter of 2022) reporting year over year drops in revenue of 250 million, which represented more than half of their prior year quarter. Additionally their share price is down 70% from all time highs in 2021.
The Grim Reaper targets Robinhood
After 18 months+ of waiting, finally a a Miami federal judge decided to allow a proposed investor class-action lawsuit to go forward and hopefully see the once-popular APP face the music on (alleged) market manipulation claims. And while the justice system moves at a snail pace, the markets do not — and the stock price of Robinhood fell nearly a point on the news. As the stock approaches single digits, the best case scenario is that Robinhood will just become insolvent and go away. While millions of people will likely never be made whole on the billions of unrealized, possible “gainz” from that fateful day — standing on the grave of Robinhood one day may provide some satisfaction.
We’ll see you hell Robinhood
(If this story is news to you and you happen to use Robinhood, may we recommend uninstalling ASAP)