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Portfolio > Economy & Markets > Stocks

Lawsuit Alleges Broad Conspiracy on GameStop Trading Restrictions

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A new class-action lawsuit alleges that brokerages, fund companies and clearinghouses “conspired” to prevent retail investors from buying stocks like GameStop, thereby “stripping them of their rights to control their investments.”

The brokerages named in the suit include Robinhood, Schwab, TD Ameritrade, Interactive Brokers, Morgan Stanley, E-Trade and Ally Financial; the clearinghouses named include Apex Clearing Corp. and the Depository Trust & Clearing Corp.; and the fund firms named are Citadel Securities and Melvin Capital Management.

There were nearly three dozen defendants in all, including multiple entities tied to the same firm.

The 51-page suit, filed Thursday in the Northern District of California, states: “This case is about individual investors … who invested their hard-earned money in the stock market and were stripped of the rights to control their investments due to a large, overarching conspiracy to prevent the market from operating freely and to stop the Defendants from hemorrhaging losses as a result of their highly speculative short selling strategies.”

Schwab said in a statement on Jan. 31 that neither “Charles Schwab & Co. nor TD Ameritrade halted buying or selling ANY stocks this week. Neither firm restricted buying or selling basic options. Both firms did adjust margin requirements on select stocks to ensure clients had sufficient assets to pay for stock purchases. Both firms also restricted certain advanced options strategies.”

The brokerage firms, fund companies and clearinghouses “conspired to prevent the retail investors from buying any further stock and forcing retail investors to sell their relevant securities to artificially suppress stock prices of the relevant securities,” the suit states.

The brokerages operating through websites and mobile apps “disabled all buy features on their platforms and thereby left the Retail Investors with no choice but to sell or hold their rapidly dwindling stocks,” the suit alleges.

The brokerages “did so to ensure that the stock prices for the Relevant Securities would go down in furtherance of the conspiracy. Other brokerage defendants displayed loading graphics on the landing pages for these Relevant Securities to prevent users from purchasing any more relevant securities.”

The plaintiffs, “faced with an imminent decrease in the price of their positions in the relevant securities due to the inability of retail investors to purchase shares, were induced to sell their shares in the relevant securities at a lower price than they otherwise would have,” the suit states.

Ally Financial said in a statement: “We believe our inclusion among the more than 30 defendants in this case is without merit and look forward to vigorously defending ourselves.”

Interactive Brokers and Apex declined to comment.

Morgan Stanley, E-Trade and Robinhood did not respond to a request for comment by press time.

The nine-count suit alleges fiduciary duty, fraud and negligence violations.

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