NEW YORK (REUTERS) - Robinhood online brokerage has been one of the hottest venues for investors in a retail trading frenzy. Now it is in the line of fire from angry customers, disgruntled celebrities and politicians.
Citing market volatility and the need to keep investors informed, the Menlo Park, California-based app said on a blog on Thursday (Jan 28) that it was halting trading of viral stocks including GameStop, AMC Entertainment, American Airlines and Nokia and raised margin requirements for certain securities.
Robinhood said in a later post that starting Friday, it planned to allow limited buys of these securities.
Shares of those companies slid on Thursday, with GameStop down more than 30 per cent and retail investors and observers quickly turned to Twitter to criticize the move. In after hours trading, shares rebounded on the Robinhood update.
"Robinhood? Nah yall ROBBING the HOOD," tweeted one user. "Crazy how you guys would rather watch your company burn to the ground than live up to your promise to provide users with free trade," commented another.
Twitter users also complained that Robinhood had appeared to be selling their shares without authorization. Robinhood did not immediately give comment on whether it had restricted sales.
While other brokerages also restricted trading, including Interactive Brokers, it was Robinhood that drew the most ire.
Two customers sued Robinhood Financial, seeking damages trading halts in a series of stocks.
Even American politicians on both sides of the aisle called out the trading platform.
"This is unacceptable," tweeted Representative Alexandria Ocasio-Cortez, a Democrat. "We now need to know more about @RobinhoodApp's decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit."
She added that she supported a hearing on the matter at the House of Representatives Financial Services Committee of which she is a member.
Her tweet was shared by Republican Senator Ted Cruz who commented "Fully agree." Tesla founder Elon Musk, whose shares have also been a retail favorite, also commented on Ocasio-Cortez's tweet saying "Absolutely".
Robinhood did not respond to requests for comment.
Celebrities also chimed in. "Yo this is a fucking CRIME what @RobinhoodApp is doing DO NOT SELL!!!", tweeted rapper Ja Rule.
Robinhood, which has become popular with young investors for its easy-to use interface, has been at the heart of the mania that kicked off this week following calls by Reddit thread WallStreetBets to trade certain stocks that were being heavily shorted by hedge funds.
The wild moves prompted several platforms including Robinhood to suspend trading. Robinhood bore the brunt of the online fury.
Founded in 2013 with the mission of "democratizing finance for all" by offering commission-free trading, the move was seen by many as hypocritical. Many users shared a tweet from 2016 in which the company said "Let the people trade."
"This was always a potential issue with Robinhood," said Ian Kar, co-founder and chief executive of research provider Fintech Today. "When are you responsible for helping your users make good financial decisions, versus allowing them to trade freely?"
Robinhood has seen business boom during the coronavirus pandemic as more homebound consumers took to buying and selling stocks online. The app now counts more than 13 million users.
While its engaging service has made it appealing to millions of customers, it has also drawn the scrutiny of critics and regulators who are concerned the company may be encouraging risky behavior in retail investors. It also suffered a number of outages over the past year.