This episode of Financially Legal is a departure from our usual. Normally we talk about law, economics, and even finance as applied to the practice of law. Today, we’re talking about one specific legal issue that has some financial underpinnings. Specifically, the GameStop short squeeze.
If you’ve been paying any attention to the news - or especially social media - over the last couple of weeks you’ve almost certainly heard the name GameStop. They’re a publicly-traded retail establishment that sells video games. The conventional wisdom was that GameStop was facing serious headwinds in the form of competition from digital downloads and a lack of retail demand due to the pandemic. Therefore, most expected that GameStop stock was going to go down in price. Instead, the price spiked dramatically. Almost 1000% in a few weeks. Add to this unexpected spike the facts that there appears to have been some excitement about this stock in a subreddit called r/wallstreetbets, that many of those Reddit traders were using apps to make these trades - most notably one called Robin Hood which claimed to democratize stock trading and financial services for the masses, that many larger institutional investors seemed to be losing a bunch of money due to this spike, that AOC (Alexandria Ocasio-Cortez) and Ted Cruz agreed about some perceived unfairness when Robin Hood appeared to stop or limit trading of GameStop and other securities that were potential targets of similar squeezes, and that number of class-action lawsuits have now been filed against Robin Hood, and you’ve got a really interesting story.
I dive in with class action securities litigation lawyer Jake Walker from Block and Leviton to understand what’s going on, what’s new in this situation, and what (if any) legal liability exists for the parties involved.