Watch CBS News

Colorado Investors Call For Investigation Into Robinhood Over GameStop Trading Freeze

DENVER (CBS4) - Investors are calling for an investigation of the activity leading up to Robinhood Markets Inc. restricting trades on certain stocks last week when small shareholders saw large profits at the expense of major Wall Street firms. Coloradans who used the online broker say they want transparency as a lawsuit in Colorado has already been filed, and state as well as federal lawmakers are looking into the matter.

"I'm actually really into investing. I've studied Warren Buffet, Tony Robbins, and Ray Dalio," said Nick Brown, the CEO of Effct.org, a digital marketing agency that works with organizations to improve outcomes on issues like climate change and education. "One of the things that you look for is to buy a company when the stock is low so that it may go up and you can sell high."

ROBINHOOD APP 5PKG.transfer_frame_373
(credit: CBS)

Brown usually works with a traditional broker but had heard of Robinhood several years ago. When he saw AMC Theatres trading at an attractive price last week, he decided to purchase shares using the discount financial services company. He also bought shares of GameStop.

"I get in, I wake up, and my AMC stock has essentially quadrupled, it went up by about 300 percent while I was sleeping," he told CBS4 on Monday. "I decided, you know, I want to invest some more, I like the direction where these are going so I, after hours, I attempted to buy more stock of AMC and GameStop on Robinhood."

ROBINHOOD APP 5PKG.transfer_frame_541
(credit: CBS)

Both companies were stocks that large investment firms were going "short" as a way to make money. Shorting is where you bet against a stock, thinking it's price will drop below it's current level, and profit from its decline. A discussion on the website Reddit, where there is a community specific to bets on Wall Street, encouraged purchasing these stocks so that the shorting approach would fail. Enough small investors bought stock in those companies, sending the price higher and preventing those major financial institutions from earning those expected returns. Instead, those individuals saw huge gains in their portfolio as the value of those companies increased exponentially.

ROBINHOOD APP 5PKG.transfer_frame_1076
(credit: CBS)

"I set that order and then when I woke up on Thursday morning I believe, Robinhood had informed me that my trade had been cancelled," Brown explained. "Robinhood made the promise to bring investing to the people and then all of sudden, actually the only thing you can do is sell, you can't buy anymore."

While the price of GameStop and AMC continued to rise last week, a selloff started when investors were unable to keep buying shares of those companies. Robinhood explained the move in a blog post saying that they had to limit buying.

"As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits," the company posted last Thursday. "Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets."

Brown says investments based on research and calculated risk should be honored and wants to see an investigation by the Securities and Exchange Commission or other government agencies. Last Friday, Chance Daniels filed a lawsuit in U.S. District Court with the Hannon Law Firm saying Robinhood deprived investors of the ability to participate in the open-market and manipulated it. Daniels lives in Colorado and told CBS4 to speak to his attorney, a phone call to his firm has not been returned as of Monday.

"Of course that's going to drive down the price of a stock and therefore it's going to drive down what I and other investors could have been earning," Brown said. "I'm going to get in on that, I see a great opportunity, and then all of sudden Robinhood and other brokerages say, 'Wait, wait, wait, you can't invest like that. That's not what we're talking about when we said investing.'"

ROBINHOOD APP 5PKG.transfer_frame_1580
(credit: CBS)

State Rep. Dave Williams of Colorado Springs sent a letter to Attorney General Phil Weiser last Friday asking him to investigate the company for manipulation.  Weiser's office said Monday that it referred Williams to the appropriate agencies to handle his request.

"I found that to be very hypocritical and I thought this was a time when retail investors were finally starting to realize the power of the stock market to create positive change in their financial situation," Brown said of the move by Robinhood. "We need transparency, that is for sure, we need to know what conversations Robinhood and other brokerages were having at this time when they essentially gave a bad deal to retail investors."

Members of Congress have called for a hearing on the actions of Robinhood. It is a unique case where Rep. Alexandria Ocasio-Cortez of New York and Sen. Ted Cruz of Texas are on the same side of this issue.

"I absolutely think that there should be an investigation lead by the government," Brown said. "It's rare in our day and age that you see Republicans and Democrats agree on something."

Robinhood maintains its decision was based on risk-management and was not to protect the major players on Wall Street it does business with on a regular basis.

"We stand in support of our customers and the freedom of retail investors to shape their own financial future," the blog post said last Friday.

Brown has used this opportunity to help others understand what happened and think about how they invest moving forward. He posted on social media that the decision by the company was similar to inviting someone to play basketball and then saying you can no longer score points on your hoop of the court.
https://vm.tiktok.com/ZMe14uWRb/
While he waits to see how lawmakers in Washington, D.C. might intervene, he hopes the past week teaches those new to the stock market to be aware of the risk and only take on what you can afford to lose.

"The retail investor is sick and tired of it and they want a fair, free market, and a fair, leveed playing field where they too can profit," he said.

 

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.