GameStop Stock Skyrockets After Reddit-Led Rally; Naperville Man Sues Trading Platform Robinhood For 'Market Manipulation'
CHICAGO (CBS) -- A Naperville man who claims stock trading platform Robinhood is manipulating the market is now suing.
This comes after thousands of small investors turned the tables on major Wall Street players this week. The company in the middle of it all is GameStop.
As CBS 2's Jermont Terry reported, attorney Richard Gatz claims he lost big after Robinhood stopped him from trading. Gatz is demanding the courts "require Robinhood to continue to allow trading."
It is alleged the stock trading app halted sales "so they can trade at their actual market value."
As CBS 2's Jermont Terry reported, this comes a day after some small retail investors gathered on Reddit to buy up shares, with a purpose in mind.
When people say they are "shorting a stock" or "going short" their profits go up when the stock goes down. They borrow shares and immediately sell them. Then, if the price goes down, they return that to the broker and keep the rest as profit.
What they don't want is a group of people bidding up the price, but that's exactly what happened this week with GameStop, turning the tables on those going short and costing them money.
Even before COVID, the American mall was hurting, and GameStop, the leading brick-and-mortar video game seller, felt the pain as online competitors chipped away.
For most of last year its stock traded under $20 a share. Big Wall Street investors started "shorting" the stock, betting it would drop more. If it did, they would make money. If it rose, they'd take a loss.
Small investors got angry and banded together. Using the WallStreetBets subreddit on the forum Reddit, they encouraged others to buy. And buy they did.
It drove the stock price up dramatically, creating massive losses for those big time Wall Street investors. On Wednesday GameStop's stock closed at almost $350 a share.
"I don't know whether I would call it a scheme," said Professor Matthew Lyle with the Kellogg School of Management.
Lyle also said it is not clearly illegal. A key question for him is whether those behind all this were focused more on taking down Wall Street elites or getting rich themselves?
"This is a chance to get them – buy, buy, buy – and they got enough people. We don't fully understand all the intentions right now," Lyle said.
One person who might understand is the man who organized the subreddit.
"There is something to be said about the fact that that pretty much anybody can do it too, and watching them do it collectively is certainly a show," said WallStreetBets Reddit forum creator Jaime Rogozinski.
It's a show that used Wall Street and the American mall as its stage.
The question now is, will there be an encore?
"It is amazing that you're able to rally this type of money to induce this type of trading strategy," said Lyle.
GameStop was down 44% on Thursday.
Two other companies saw huge swings using the same model on Wednesday. AMC, the movie theater giant, jumped fourfold on Wednesday, while Thursday, it dropped 56%. And Chicago candy maker Tootsie Roll soared from $37 to $53 a share Wednesday, but Thursday, it dropped 9%.
So when the everyday non-Wall Street buyer got in the market, the stocks soared. But GameStop fell once Robinhood placed the temporary restriction on trading.
"That's where the outrage comes from," said Jordan Belfort, author of "The Wolf of Wall Street." "Because Wall Street rips off America all the time, and then now the little guy finally had their own little chance to get in on the action - the big firms shut it down."
So just how much is the Naperville attorney losing? He said "monetary damages continue to accrue and likely will be substantial" until he can trade again.
He claims he lost more than $75,000 because he was prevented from selling some shares, and he called the move "market manipulation."
Both Republican and Democratic members o congress said an investigation should happen to find out exactly why investigating apps like Robinhood stopped trades.
Robinhood is expected to resume trading again Friday after remaining closed all of Thursday.
CBS 2's Chris Tye and Jermont Terry contributed to this report.
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