Robinhood lawsuit over ‘meme’ stock restriction escapes dismissal

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Update:

• Robinhood must continue to face investors’ claims that the company manipulated the stock market when it blocked investors from buying “meme stocks” on its stock-trading platform during a time of high volatility last year, a Florida federal judge has ruled.
• On Aug. 10, U.S. District Judge Cecilia M. Altonaga rejected Robinhood’s motion to dismiss the lawsuit, writing that investors had plausibly alleged the trading platform acted willfully to lower the prices of the affected stocks.
• While the judge dismissed claims Robinhood misled investors as to its liquidity problems, she allowed market manipulation claims to proceed. 
• Investors claim Robinhood acted improperly when it instituted a “position closing only” policy for buying so-called meme stocks during a time of high market volatility last year.
• Judge Altonaga said the plaintiffs argued Robinhood’s alleged actions artificially affected supply and demand, thereby depriving investors of an accurate picture of the market, and added that the court agreed with this argument. 

Robinhood meme stock trading MDL overview: 

• Who: A Florida federal judge dismissed investors’ claims against Robinhood.
• Why: Investors claimed Robinhood improperly blocked them from buying meme stocks; however, a judge ruled the stock-trading platform had acted within its rights.
• Where: The MDL was tried in Florida federal court.

(Jan. 31, 2022)

A federal court in Florida dismissed claims Robinhood improperly blocked investors from buying “meme stocks” on its stock-trading platform during a time of high volatility last year. 

Robinhood acted within the limits of its customer agreement when it suspended investors from purchasing the so-called meme stocks, the judge overseeing the case ruled. 

“No doubt, plaintiffs were gravely disappointed when Robinhood suspended purchases of the meme stocks and their holdings declined in value. But the law does not afford relief to every unfulfilled expectaion,” the judge said in an order.

The judge ruled investors had failed to adequately allege any of their seven claims, which included negligence and civil conspiracy, among other things. 

The court also determined that the ruling would have been the same whether or not California or Florida law was applied, something that had been debated by Robinhood and investors. 

Investors claim Robinhood acted improperly when it instituted a “position closing only” policy for buying so-called meme stocks such as Gamestop and AMC during a time of high market volatility last year. 

Robinhood has maintained it was in the right of its customer agreement to take the actions that it did, arguing it was also rushing to “raise enough cash to meet clearinghouses’ rapidly evolving deposit requirements.” 

While the prices for the meme stocks decreased after Robinhood instituted its changes, investors couldn’t say the platform was entirely to blame, the judge also ruled. 

“It is evident that the January 2021 short squeeze was caused by the aggregation of many individual decisions by independent decision-makers,” the judge said. “Robinhood’s actions were just one link in the causal chain.”

Shareholder claims Robinhood misled investors about revenue

The court’s decision comes days after a shareholder claimed in a Delaware federal court that Robinhood failed to inform investors its revenues were decreasing at the time of its $2.1 billion public offering launch last year. 

Plaintiff Robert Zito claims Robinhood withheld from investors that a recent revenue increase thanks to cryptocurrency trading had not been sustained and really only concealed that the company wasn’t doing all that well to begin with. 

“The offering documents were false and misleading and omitted to state that, at the time of the offering, the company’s revenue growth was, indeed, experiencing a major reversal, with transaction-based revenues from cryptocurrency trading serving only as a short-term, transitory injection, effectively masking what was stagnating growth,” Zito said.

Robinhood’s stock price dropped by more than 10% following reports it had missed analysts’ revenue estimates and seen a user decline during last year’s third quarter, according to the complaint. 

A separate class action lawsuit was filed against Robinhood last month by an investor who claims the company failed to adequately protect users’ data from being exposed in a November data breach. 

Have you invested using Robinhood’s stock-trading platform? Let us know in the comments! 

The investors are represented by lead counsel Natalia M. Salas, James L. Ferraro, James Ferraro Jr., Bruce S. Rogow, Sean A. Burstyn and Daniel J. DiMatteo of The Ferraro Law Firm PA; and liaison counsel Rachel W. Furst of Grossman Roth Yaffa Cohen PA.

The Robinhood meme stock trading MDL is In re: January 2021 Short Squeeze Trading Litigation, Case No. 1:21-md-02989, in the U.S. District Court for the Southern District of Florida.

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