These sorts of lawsuits are an important enforcement mechanism, forcing more transparency from companies, Mr. There is вЂњno questionвЂќ the decision to limit trading during the January chaos harmed retail traders and cast doubt on RobinhoodвЂ™s claims of leveling the playing field for the small investor against big institutions, said Marc Steinberg of Southern Methodist UniversityвЂ™s law school, the author of вЂњRethinking Securities Law.вЂќ вЂњThe question is to what degree we are going to hold parties liable.вЂќ (In March, Robinhood removed the digital confetti that celebrated trades in the app.) And because brokers make more money if customers trade more, the incentive is to вЂњgamifyвЂќ trading, which could be against the investorsвЂ™ interests. Robinhood makes more from this practice than other brokers because its traders are more active.Д¬ritics of payment for order flow, who include some lawmakers and regulators, say it presents a conflict for brokers who are paid by market makers but owe a fiduciary duty to customers. In this arrangement, the broker sells customer orders to market-making firms (primarily Citadel Securities in RobinhoodвЂ™s case) that execute the trades. The company generates about 80 percent of its revenue from payment for order flow, which allows it to offer commission-free trading to users. Investors taking part in the class action argue that RobinhoodвЂ™s business model has a built-in conflict of interest. That may challenge RobinhoodвЂ™s pitch that itвЂ™s a platform for вЂњeverything that you use your money for,вЂќ as Vlad Tenev, its chief executive, told The Associated Press last month.Д«uilding customer trust is key to RobinhoodвЂ™s expansion beyond fee-free trading into new business lines, muscling in on more established rivalsвЂ™ turf and justifying its heady market capitalization. The class action could reveal more about what motivated the companyвЂ™s decisions. Robinhood said it had restricted trading in meme stocks to protect itself and customers, citing regulatory obligations to monitor and maintain capital requirements. RobinhoodвЂ™s counsel did not respond to a request for comment. They accuse the company of gross negligence and violations of antitrust and securities laws. RobinhoodвЂ™s curb on trading during the frenzy hurt its customers and benefited its business associates, according to investors in the class action. Some of the issues relate to RobinhoodвЂ™s actions in late January, when it abruptly limited trading for customers clamoring for meme stocks that were soaring as groups of small investors united on social media and squeezed the institutional players betting against the shares. registration document, a description of the legal proceedings pending against the company filled seven pages.

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