As a large-scale “short squeeze” lawsuit continues at the Florida Southern District Court, a number of online trading companies have been dismissed from the antitrust tranche of the case. This is made clear by a set of documents filed by a counsel for the plaintiffs on August 24, 2021.
The documents, seen by FX News Group, show that the case is voluntarily dismissed against:
- Webull Financial LLC;
- tastyworks, Inc;
- Dough LLC;
- Alpaca Securities LLC;
- Ally Financial, Inc;
- Open to the Public Investing, Inc.
This case is about individual investors who invested their money in the stock market and were allegedly stripped of their rights to control their own investments.
Leading up to January 27, 2021, the retail investors, through stock brokerages, including the Brokerage Defendants, invested in certain stocks—GameStop (GME), AMC Entertainment (AMC), Bed Bath & Beyond (BBBY), BlackBerry (BB), Express (EXPR), Koss (KOSS), Nokia (NOK), Tootsie Roll Industries (TR), and Trivago NV (TRVG) – that they believed would increase and serve as good investment opportunities.
As more retail investors bought the relevant securities and these orders were routed to market makers, such as Citadel Securities LLC, the market makers acquired substantial short positions in the relevant securities, and were thus exposed to massive potential losses as the prices of the relevant securities increased.
Along with market makers such as Citadel Securities, several large hedge funds and investment firms, including Maplelane Capital, LLC, Melvin Capital Management LP, and others, established massive short positions in the relevant securities.
In so doing, the hedge funds, market makers, and other unnamed co-conspirators made highly speculative bets. When the relevant securities increased in value, due in large part to retail Investors purchasing the relevant securities, hedge funds were exposed to massive potential losses of several billion dollars.
Citadel Securities took the other side of the buy orders placed by the retail investors, i.e., Citadel Securities sold the relevant securities short in order to complete the routed retail investors’ orders. Citadel Securities, as it took the other side of more and more buy orders, acquired a substantial short position in the relevant securities, and was similarly exposed to massive potential losses.
As retail investors and others continued to purchase the relevant securities, the hedge funds, Clearing Defendants, Citadel Securities and unnamed co-conspirators were caught in a classic “short squeeze.”
On January 27, 2021, Citadel Securities executed short trades in the Relevant Securities in the after-hours session to develop larger short positions in the relevant securities in anticipation of the relevant securities declining in price on January 28, 2021.
The traders allege that the Brokerage Defendants, along with Citadel Securities and the Clearing Defendants conspired to prevent the retail investors from purchasing shares of the relevant securities.
On January 28, 2021, the brokerage defendants disabled all buy features for the relevant securities on their platforms thereby stripping the demand-side and halting the price appreciation in the relevant securities. Defendants’ action drove the stock prices down and forced Retail Investors to sell shares of their Relevant Securities.
At the point in time where the Brokerage Defendants engaged in this conspiratorial effort to thwart buyers, the Relevant Securities had appreciated to unprecedented levels. Such highly appreciated stocks are generally sensitive to reversals in price and can make sharp price movements lower when a reversal occurs. Defendants were aware of this dynamic and the propensity of the Relevant Securities to drop substantially as a result of the Defendants’ collective action to prevent customers from buying the Relevant Securities.
The traders further allege that, in furtherance of the conspiracy, the Brokerage Defendants, operating trading platforms through websites and mobile applications—restricted Retail Investors from purchasing the Relevant Securities on their platforms and thereby halted the price appreciation in the Relevant Securities. This conduct predictably and foreseeably caused a loss of confidence in the Relevant Securities and an ensuing panic selloff by the Retail Investors.
The Brokerage Defendants did this to ensure that the stock prices for the Relevant Securities did not appreciate further and would instead sharply decrease in furtherance of the conspiracy, the plaintiffs’ complaint says.
According to the traders, by forcing the Retail Investors to sell their Relevant Securities at lower prices than they otherwise would have, Defendants artificially constricted the price appreciation of the Relevant Securities, and reduced the price of the Relevant Securities that Retail Investors either sold or held below the prices that they would have otherwise obtained in a competitive market free of collusion.
Let’s recall that dozens of companies are listed as defendants in this lawsuit. The number of parties in the multi-district litigation is 194, according to today’s data from the Court.