An appeal court in the United States has dismissed certain claims against Robinhood by a group of investors over trading restrictions imposed by the trading platform during the meme stock frenzy that happened three years ago, Reuters reported today (Thursday).

Robinhood Prevails in Court

In January 2021, a large group of amateur traders on the subreddit channel, WallStreetBets, pumped the price of certain stocks such as Gamestop, AMC Entertainment and Blackberry, causing big losses for hedge funds who shorted the stocks, or bet that their prices would fall. However, Robinhood at the peak of the market restricted trading of several of the meme stocks, defending the move as a risk management decision.

The stock mania resulted in Robinhood raising more than $1 billion in additional emergency cash. It also forced several other brokers, including TD Ameritrade, IG Group and Charles Schwab, to ban trading on the stocks and derivatives that soared.

However, following the restriction, disgruntled traders dragged Robinhood to court, alleging market manipulation by the platform. They claimed that due to Robinhood's actions, they missed out on some of the most significant stock market surges ever recorded.

However, in a unanimous decision, which upholds the judgment of a federal court passed in November 2021, the 11th US Circuit Court of Appeals in Atlanta stated that Robinhood's standard client contract expressly allowed the limitations. This indicates that Robinhood was not obliged to process every trade request, the court said.

Additionally, the court rejected the allegations that Robinhood was careless in preventing investor losses or did not ensure the proper functioning of its essential systems. Specifically, Circuit Judge Britt Grant acknowledged that while Robinhood's decision to restrict the buying of meme stocks may have hurt its public image, the court is only concerned with whether Robinhood fulfilled its legal obligations .

Robinhood vs. Massachusetts

In a separate development, a lower court last year ruled in favour of Robinhood in a case in which Massachusetts Secretary of State, Bill Galvin, accused the broker of breaking its fiduciary duty rule by encouraging inexperienced traders to place risky trades. However, Massachusetts’ securities watchdog is now appealing the case at the Supreme Judicial Court of Massachusetts, Finance Magnates reported.

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