The recent stock market events were unprecedented after social media posts on stock trading forums like Reddit’s WallStreetBets created a buying frenzy among investors focusing specifically on stocks heavily shorted by hedge funds.
Notable hedge funds such as Point72 Asset Management and Melvin Capital declined more than 20% on average after their short positions in stocks such as GameStop (GME), AMC Entertainment Holdings Inc (AMC), Bed Bath & Beyond (BBBY), and Nokia (NOK) were squeezed by traders and investors alike.
GameStop, for example, was up more than 1100% in just over the last week. While many retail investors cashed out and made incredible returns in a short period, Wall Street cried foul of this tremendous display of momentum. Then, on January 28, 2021, platforms such as Robinhood, TD Ameritrade, and Interactive Brokers halted buy orders on several stocks during the climax of the upswing.
Consequently, traders had no choice but to hold or sell their positions and while other willing participants were prevented from buying the climbing stocks.
The platforms’ decision resulted in a loss of millions of dollars and thousands of traders stuck while watching their stocks’ value drop dramatically due to this unconcealed form of market manipulation.
To add insult to injury, many of the same trading platforms claiming to be in favor of the democratization of finance were complicit in driving the frenzy showing the stocks as trending over the past week.
WHAT CAN YOU DO?
If you were left with no choice but to sell your positions out of fear because your once reputable trading platform can unilaterally decide to stifle demand in a matter of moments and render your investment worthless, you might have recourse.
Like most Wall Street players, trading platforms embed arbitration clauses in their client agreements giving their clientele little option but to pursue a rubber-stamped arbitration process.
HOWEVER, this may not be the case here since there was a blatant disregard for thousands of clients’ well-being, an unmitigated manipulation of the market and alleged fraud. Therefore, a class-action lawsuit may be a more appropriate avenue to ensure just compensation is received, reiterating the theme of recent events that there is strength in numbers.
KNOW YOUR RIGHTS! – If you transfer your shares out of your accounts, hoping for the ability to buy the next day, you will sorely be disappointed. The average time to transfer shares into a new brokerage account is 2-3 weeks. As most know, in times of volatility, that can be devastating. Also, be sure to screenshot and save any documents that pertain to your trades.
PROTECT YOUR RIGHTS! If you believe that you have suffered a financial loss due to the unexpected intervention from your online trading platform or have any general questions related to the recent events, please contact UBFK Law Group at:
Uniglicht, Bloom, Frackt & Kleinman