Robinhood is close to finalizing a settlement with a group of investors who sued the online brokerage over its decision to restrict trading in GameStop Corp. and other meme stocks during a frenzy in early 2021, according to a court filing.
Robinhood Getting Closer to Settlement in Meme Stock Trading Lawsuit
In a May 28 filing in federal court in Miami, Robinhood's lawyers said the company is "in the process of finalizing the settlement" with the investors and expects the case to be settled and dismissed within the next two weeks. The filing did not disclose the potential settlement terms between the trading platform and retail traders.
The investors, led by plaintiff Blue Laine-Beveridge, had accused Robinhood of manipulating the market and causing them to lose money by limiting their ability to buy shares of GameStop, AMC, and other meme stocks that had soared in popularity among retail traders.
The trading restrictions, put in place from January 28 to February 4, 2021, sparked outrage among Robinhood's customers and drew scrutiny from lawmakers and regulators. Robinhood said at the time that buying in the affected stocks had to be limited due to a surge in clearinghouse deposit requirements.
The lawsuit is one of several that Robinhood has faced over handling the meme stock trading frenzy. The company denied wrongdoing and said that the restrictions were necessary to protect the firm and its customers.
The settlement comes after US District Judge Cecilia Altonaga denied the investors' request to file a motion for class certification in April. The judge had previously denied a similar request in November.
Shares of Robinhood, which have fallen sharply since the company went public last year, rose by 3% during Wednesday's session, closing above $21. This year, HOOD shares are up more than 65%, but they are still down about 35% from their 2021 IPO.
Robinhood Reclaims the Throne in "Meme Frenzy"
This month, the market once again witnessed a surge in meme stocks, driven partly by the cryptocurrency market. Despite being criticized by investors for its actions three years ago, Robinhood has once again emerged as a leader in this trend, which ended as abruptly as it began.
Vlad Tenev, the broker's CEO, revealed that May 14 was one of the "biggest days in the past 12 months" for his company, as the daily equities trading volume touched $5 billion. In comparison, Robinhood's total monthly equities trading volume was $70.7 billion in April, down 17 percent from the previous month’s $87.7 billion. Interestingly, in April 2023, the broker only handled $38.9 billion in equities trading volume.
The return of the meme stock mania in 2024 was sparked by a single tweet. Keith Gill, known online as "Roaring Kitty" and considered the catalyst of the pandemic-era stock craze, reappeared on Twitter after three years. On Sunday, he posted an image depicting a man sitting in a chair. While this might seem like an insignificant picture, gamers recognize it as a meme indicating that "things are getting serious."
Although GME shares at one point rose by nearly 500% during the month, the gains have now mostly disappeared. The profit at the end of May stands at "only" 90%, with the shares trading at their highest level since August 2023.
In the newest update from this week, the retail trading company also announced its first share buyback plan. Robinhood wants to repurchase shares worth $1 billion in the period of the next 2-3 years.
