Schwab, TD Ameritrade, Interactive Brokers Sued Over Trading Restrictions

In so doing, the brokerages "created a one-way buy-sell situation by which the only option of retail investors who had already purchased the above securities, and others, to sell/liquidate their holdings, thus depriving these stocks of buy liquidity to counter selling pressure by permitting purchase of the equity to take place."

The end result: "all of these equities, and Plaintiff and other class members that held them suffered massive losses to their equity shares."

Taking advantage of this situation, the lawsuit states, "hedge funds and equity firms performed a series of vertical ladder attacks against these equities throughout the day in order to hunt and strike stop loss orders and margin calls."

Numerous retail investors, the lawsuit continued, "were forcefully stopped out of their positions by Defendants at incredibly low prices as a result of these attacks, suffering massive financial losses."

The Context

Robinhood has been hit with numerous suits since the GameStop trading incident, which is part of a battle royal being waged between day trading investors bullish on GameStop stock and hedge funds that have shorted the stock.

"I predict a book on this, if not more, along with a movie," Allianz Chief Economic Adviser Mohamed El-Erian tweeted Friday. "What is hard to call at this stage is the ending … not just for those directly involved but also for the broader asset prices, market structure, regulation & financial stability."

U.S. stock markets have gotten caught up the GameStop drama, which eventually spilled into other retail stocks including AMC and Blackberry and led brokerage firms like Robinhood, Interactive Brokers, E-Trade and Webull Financial, to restrict some trading in GameStop and several other stocks this week, according to Wall Street Journal and Bloomberg reports.

In the meantime, hedge funds were selling other stock favorites like Apple, Netflix and Amazon to make up for their losses. Other factors affecting the markets this week included weak U.S. economic growth for 2020 and mixed news on vaccine efficacy.

The SEC announced it was "closely monitoring" the trading situation. The restrictions slashed gains in GameStop and some other stocks, but once they were lifted, the rallies returned.

Asked if the recent activity in GameStop shares bothered him, El Erian told CNBC on Thursday: "I am troubled because it is enabled by very distorted financial conditions."

— Related on ThinkAdvisor:

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• Congress Targets GameStop Stock Mania as Ocasio-Cortez Rips Robinhood