Robinhood Markets on Thursday dismissed an appeal by investors against the stock-trading platform’s decision to limit purchases of 13 “meme stocks” during a January 2021 frenzy that pressured hedge funds.
Customers who owned stocks including AMC Entertainment, the former Bed Bath & Beyond and GameStop allege in the proposed class action lawsuit that they lost money because Robinhood stopped them from buying more as social media-driven trading pushed prices down raised.
Other holders of the shares also said they were hurt as the restrictions ultimately caused their shares to fall in price.
But in a 3-0 decision, the 11th US Circuit Court of Appeals in Atlanta said that Robinhood’s standard customer agreement expressly allows for the restrictions and does not suggest that Robinhood would accept all trade orders.
The court also rejected claims that Robinhood negligently failed to protect investors from losing money or failed to ensure that its “business-critical systems” would function properly.
“When Robinhood restricted its customers’ ability to buy meme stock, it took a significant — and perhaps justified — blow to public opinion,” Justice Britt Grant wrote. “But in this court, Robinhood is only responsible for certain legal duties.”
The plaintiffs’ attorneys did not immediately respond to requests for comment. Robinhood and its attorneys did not immediately respond to similar requests.
Thursday’s decision upheld a November 2021 ruling by Chief Justice Cecilia Altonaga of the Miami Federal Court.
The meme stock frenzy was fueled in part by investors using online forums like Twitter and the WallStreetBets subreddit.
This resulted in a “short squeeze” that caused huge losses to hedge funds betting that stock prices would bet, and what Robinhood described as “excessive regulatory collateral demands” on the Menlo Park, Calif.-based company and other brokers .
Robinhood is also being sued by investors who sold nine meme stocks at a loss in late January and early February 2021.
Robinhood shares were up 3 cents at $10.83 as of Thursday afternoon.