Online trading company Robinhood has sought to rebuff market manipulation claims by plaintiffs in a multi-district litigation concerning the January 2021 short squeeze.
The market manipulation claims are at the core of the Federal Securities tranche of the litigation. This tranche relates to all actions against Robinhood involving the Federal Securities Laws. This means that all of those nearly 50 cases that alleged Robinhood violated Federal Securities Laws are now consolidated in this complaint. These allegations come on top of the allegations that Robinhood conspired with Citadel and that Robinhood breached its fiduciary duties.
The complaint in the Federal Securities tranche is brought by Lead Plaintiff Blue Laine-Beveridge, named Plaintiffs Abraham Huacuja, Ava Bernard, Brandon Martin, Brendan Clarke, Brian Harbison, Cecilia Rivas, Garland Ragland Jr., Joseph Gurney, Santiago Gil Bohórquez, and Trevor Tarvis against defendants Robinhood Markets, Inc. and two of its wholly owned subsidiaries, Robinhood Financial, LLC and Robinhood Securities, LLC.
This is a class action on behalf of persons or entities who held common stock in AMC Entertainment Holdings, Inc., Bed Bath & Beyond Inc., BlackBerry Ltd., Express Inc., GameStop Corp., Koss Corp., Tootsie Roll Industries Inc., or American Depositary Shares of foreign-issuers Nokia Corp., and trivago N.V. as of the close of trading on January 27, 2021, and sold such shares at a loss between January 28, 2021, and February 4, 2021.
By completely shutting down, initially, and later restricting, the demand side of the equation for the Affected Stocks in the accounts of more than 15 million very active traders, for days rather than just minutes, Robinhood unlawfully manipulated market prices for the Affected Stocks, the complaint says.
The plaintiffs accuse Robinhood of violations of Section 9(a) of the Exchange Act and of violations of Section 10(b) of the Exchange Act and Rule 10b-5.
On February 11, 2022, Robinhood filed its opposition to the plaintiffs’ claims.
Robinhood argues that the plaintiffs do not adequately plead manipulative conduct. To plead manipulative conduct, Plaintiffs must make specific factual allegations of deceptive conduct regarding market transactions. According to Robinhood, conceding that investors were “generally aware of Robinhood’s actions”, the plaintiffs instead put forth the erroneous position that Robinhood’s purchasing restrictions can still be manipulative even if they were fully disclosed.
“This theory is contrary to well-established law which requires that market manipulation claims under either Section 9(a) or Section 10(b) involve deceptive conduct, and there can be no deception where the conduct is publicly disclosed to the market”.
Robinhood adds that the plaintiffs also fail to plead that Robinhood acted with the requisite state of mind to state a claim under either Section 9(a) or Section 10(b). The defendant calls the plaintiffs’ theory that Robinhood implemented the purchasing restrictions to save itself from liquidation implausible as it does not support a market manipulation claim because Plaintiffs do not allege that Robinhood had anything to gain from depressing the price of the Affected Stocks.
Specifically, Plaintiffs do not allege that a decline in the price of GameStop or AMC after Robinhood implemented the purchase restrictions would have helped Robinhood meet its NSCC deposit requirements. Nor do Plaintiffs provide any other particularized facts or even a reason to infer that Robinhood had such an intent (it did not), Robinhood says.
Robinhood concludes that the plaintiffs fail to allege that Robinhood acted with the intent to drive up or down the prices of the Affected Stocks—a core requirement for a market manipulation claim.