Two weeks ago, the country saw an unprecedented twist in the stock market’s normal happenings. Thousands of Reddit users and those whom they reached, through r/wallstreetbets and other social platforms, came together on trading app Robinhood to throw their money and faith into GameStop, driving the dated business’ market value from $2 billion to $24 billion in days. The result? Hedge fund leaders were left scrambling after having shorted the stock. Robinhood’s response was to shut down trading of GameStop and a few other stocks in which similar situations were occurring, preventing the total toppling of affect hedge funds and sparking national outrage, lawsuits, and commentary on the exclusivity of Wall Street.

Here’s what our community had to say about all of this:


Robinhood’s Actions

On February 1st, Angelica Cesario of Lawline Blog kicked things off by breaking down the situation here, explaining  what happened with Gamestop, where Robinhood fit in, and what questions we should now be asking (many of which were answered by the blogs below).  Some of these questions interrogate our definitions of market manipulation, the likelihood of the class action suit’s success, and whether Robinhood’s terms of service even allow them to freeze trading as they did.

As outrage surrounding Robinhood’s actions spread, another Lawline author, Kyle Robbins, wrote a blog post answering that last question. He points out that while the terms of service themselves don’t reserve a right to freeze trading, the app’s user agreement does.

“Any time a tech company or app comes under scrutiny, the default reaction is to look to the Terms of Service to note if an action was allowable. But, keep in mind Robinhood is effectively acting as a tech-enabled broker. The Services themselves often just refer to the app. Here, with a stock being frozen, we need to look to the actual Customer Agreement between you and Robinhood Financial & Robinhood Securities.”

Kyle then gives a comprehensive overview of everything that users agree to when they sign up for Robinhood, how it’s all presented, and if it’s enforceable here. The specifics of even components as small as the “Review” button become important in predicting if there’s legal trouble in Robinhood’s future.

Class Action Analysis

In a comprehensive blog post, Carolyn Casey of Expert Institute discussed the specifics of the class action suit from SDNY that Robinhood faced almost immediately after it began restricting trading for several stocks. Carolyn elaborates upon Gamestop’s business outlook, the Redditors’ unity, and the legal implications of the market’s events for Robinhood and plaintiffs.

“The Robinhood debacle has caught the attention of the nation, including Congress and official market watchers. It seems likely there will soon be federal inquiries into what happened during this wild week for Wall Street and how Robinhood may have contributed to the losses. Representative Ro Khanna of California, who sits on the House Oversight Committee, told Market Watch this ‘episode reveals deep flaws in the U.S. financial services industry that require investigations by Congress, regulatory action and potentially new legislation.’”

The class action suit was a hot topic for the entire week following its announcement. Many wondered if the case could stand and what kind of legal framing would be necessary to hold Robinhood accountable. Six days later, Michael Keough of Steptoe and Johnson’s SDNY blog reported here on the case’s progress, providing the language of the complaint at hand and discussing included claims, including breach of the implied covenant of good faith and fair dealing, negligence, and breach of fiduciary duty.

Broader Legal Lessons

Our network is made up of lawyers, law students, and other critical thinkers who look at a situation not as an isolated case study but a trend indicator in the grand scheme of the legal field. Joshua Mitts from Columbia Law School Blue Sky Blog published “A Reddit Rebellion in the Robinhood Era,” outlining 3 lessons that can be gleaned from the whole ordeal. First, there is an urgent need for SEC rulemaking on social media and market manipulation. Second, Wall Street looks out for itself at the expense of ordinary investors. And third, there is a significant technology gap between the industry at hand and its regulators.

“[F]intech is an exciting new field full of tremendous innovation. But as we saw in the financial crisis, innovation without safeguards that protect ordinary Americans can be a very dangerous thing. There is reason to be concerned that we are seeing something similar today at the intersection of social media and financial markets.”

A week later, John C. Coffee Jr., also from the CLS Blog, published a post discussing how to address some of these concerns: specifically, how to best regulate Wall Street betting. John discusses increasing SEC caution, defining manipulation, and navigating both the market place and social media.

Julie St. John of the Texas Employment Lawyer blog jumped into the conversation to point out that If You’ve Enjoyed a Bunch of Reddit Users Working Together Against Institutional Investors, You Should Consider Organizing a Union. After reviewing what happened with Gamestop with readers, she emphasizes the power of working together and how the situation at hand could be a source of inspiration.

“What happened with GameStop illustrates the power individuals can have when they work together. In this case, it was individual investors in the stock market. However, this principal also applies to workers—it is the same principal unions have stood behind in the workplace for decades. One worker standing up alone has very little power over an employer. But, when workers stand together, their collective power to make change is much greater.”

Whether you were inspired, distressed, or just confused by the events  of the last two weeks, one thing is for certain; many Americans have become more acutely aware of the logistics of the stock market and the power they can (and cannot) wield over it.

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