Meme Stock Suit Against Robinhood Is Dismissed, but Others Loom
The suit was part of a proposed three-part class action suit against Robinhood and others over their roles in January’s GameStop trading frenzy.
One meme stock lawsuit against Robinhood is dismissed, but others loom.
The founders of Robinhood, Baiju Bhatt, left, and Vlad Tenev, in New York for the firm’s initial public offering on July 29.Credit…Sasha Maslov for The New York Times
By Ephrat Livni
Nov. 19, 2021, 8:13 a.m. ET
A federal court in Florida this week dismissed one part of a proposed three-part class action lawsuit against Robinhood and others over their roles in January’s GameStop trading frenzy. Investors alleged that brokerage firms like Robinhood conspired with clearinghouses and the market maker Citadel Securities to restrict trading of meme stocks as they shot up in price. The judge found otherwise.
“A bare assertion of conspiracy will not suffice,” Chief Judge Cecilia Altonaga of the United States District Court for the Southern District of Florida wrote in the order dismissing the antitrust-based claim. Executives at Robinhood and Citadel Securities “exchanged various vague and ambiguous emails” around the time of meme-stock trading halts, the judge noted, which looked “somewhat suspicious given the participants and their timing.”
But claims of conspiracy were not “plausible,” the judge wrote. The firms had a “lawful, ongoing business relationship,” in which Robinhood routes customer trades to Citadel Securities to execute and gets paid for the order flow, a common but sometimes contentious arrangement.
The case isn’t closed. There are two more tranches in this litigation, which combined claims from across the country. Retail traders are also claiming Robinhood was negligent in its duty to customers and violated securities laws.
Maurice Pessah, the lead lawyer on the negligence tranche, told the DealBook newsletter that his case is based on “totally separate and distinct legal theories.” Robinhood has moved to dismiss the claims; there could be a decision by the end of the year.