By Sam Boughedda
Robinhood (NASDAQ:HOOD) has been told by a U.S. judge that it must face market manipulation claims following the trading restrictions it placed during the 2021 "meme stock" rally, according to a report by Reuters on Thursday.
Last year the company faced scrutiny from its retail investor client base after it restricted trading in so-called meme stocks such as GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC), and other Reddit favorites following surges in their share prices.
The surge was partly driven by retail traders, causing an epic short squeeze. As a result, Robinhood restricted trading in certain stocks during the period because of increased capital requirements from its clearinghouses.
In a testimony to the House Financial Services Committee following the events, Robinhood CEO Vlad Tenev said: “The clearinghouse deposit requirements are designed to mitigate risk, but last week’s wild market activity showed that these requirements, coupled with an unnecessarily long settlement cycle, can have unintended consequences that introduce new risks."
Robinhood went public later in 2021, but after an initial jump, its shares tumbled and are now down 78.5% in the last 12 months.