AUSTIN, TX — This week, Robinhood set restrictions after several smaller retail investors banded together to buy and sell stocks in companies like GameStop.
“We haven’t really seen anything like this before. To prudently manage the risk and deposit requirements, we had to restrict buying in these 13 stocks,” said Vladimir Tenev, co-founder of Robinhood.
The activity caused GameStop's worth to soar by billions, but also cost hedge funds billions, many of which had shorted the stock, believing the price would go way down, not up.
“You sold in the market when you believed it was higher and then you plan on buying them out later at a cheaper price and giving it back to them, plus you get the pocket the difference. If you sold it for $18 a share and now it’s trading in the marked at $327 dollars, you're really hurting,” said Texas A&M Central Texas Department Chair of Finance Accounting and Economics, Robert Tennant.
Now, Texas' top prosecutor, Attorney General Ken Paxton, has launched an investigation against several finance-related companies Friday, including the popular Robinhood app.
“His lawsuit is based on interfering with the markets from the point of you that it protected the hedge funds over the retail investors by suspending the purchases,” Tennant explained.
Now BlackBerry, AMC Theatres, Bed Bath & Beyond and other type of retail companies that many expected to close are also experiencing a similar surge.
Financial experts believe despite Paxton’s investigation, this new flurry of trading is going to continue, yet the stock market eventually find ways to adapt.
