Robinhood is finalizing a settlement with investors over its 2021 meme stock trading halt, including GameStop.
Robinhood is on the brink of settling a lawsuit with investors who accused the trading platform of causing significant financial losses by halting the trading of meme stocks, including GameStop, in early 2021. The settlement process is nearing completion, as indicated in a recent court filing.
Background of the Lawsuit
In a filing submitted to a federal court in Miami on May 28, Robinhood’s legal team revealed that they are in the final stages of negotiating a settlement with the affected investors. Moreover, the company anticipates reaching an agreement and dismissing the lawsuit within the next two weeks. The specific terms of the settlement have not been disclosed, and both parties involved have refrained from commenting on the matter.
The lawsuit originated from actions taken by Robinhood between January 28 and February 4, 2021. During this period, the platform restricted trading on several popular stocks, including GameStop, AMC, Bed Bath & Beyond, BlackBerry, Nokia, trivago, Koss, Express Inc., and Tootsie Roll. Investors, led by Blue Laine-Beveridge, alleged that these restrictions unlawfully manipulated market prices and resulted in substantial financial losses, wiping out tens of billions of dollars in equity.
The investors’ lawsuit focused on alleged violations of securities laws by Robinhood. This case is part of a broader legal challenge involving multiple jurisdictions across the United States, all centered on the company’s handling of meme stock trading during the 2021 frenzy.
United States District Judge Cecilia Altonaga recently played a pivotal role in the case by denying the investors’ request to file a new motion for class certification on April 19. This decision followed a similar denial in November of the previous year, further complicating the investors’ efforts to gain class-action status.
The Rise and Fall of Meme Stocks
The term “meme stocks” refers to stocks that gained popularity and saw significant trading activity driven by social media hype rather than traditional financial metrics. GameStop became the poster child of this phenomenon in January 2021, experiencing a meteoric rise due to a short squeeze that inflicted heavy losses on hedge funds and other short sellers, while rewarding some retail traders with substantial gains.
A key figure in the GameStop saga was Keith Gill, known online as “Roaring Kitty.” Gill’s enthusiastic promotion of GameStop stock on social media platforms played a significant role in the stock’s dramatic rise. His recent return to X in May, after nearly three years of inactivity, created a buzz among traders and briefly boosted GameStop’s stock price to $48.75 on May 14, the highest level since late 2021.
Despite the brief resurgence, GameStop’s stock has since declined, closing at $21.24 on May 29, with an additional 2% drop in after-hours trading to $20.78. This decline reflects the volatile nature of meme stocks and the challenges faced by retail investors in navigating such markets.