Court Denies Robinhood Investors' Request for Class Certification in Market Manipulation Case
Summary:
The Florida Southern District Court has denied a request for class certification from investors suing Robinhood over trading restrictions in early 2021. The investors had sought to lodge market manipulation accusations under federal securities laws. The case hinges on allegations that Robinhood manipulated the market during the 'meme stock' short squeeze when they had to restrict certain trades due to enhanced deposit requirements. However, the court was unconvinced that individualized reliance issues wouldn't dominate the case.
In a significant setback, shareholders attempting to sue Robinhood over imposed trading constraints in 2021 were dealt a blow when their plea for class certification was turned down by the Florida Southern District Court on November 13, 2023. Honorable Chief Judge Cecilia M. Altonaga denied their motion, concluding that they fell short of convincing the court that individualized reliance issues wouldn't be a dominant factor. Robinhood services include zero-commission trading in stocks, cryptocurrencies, ETFs, and options, accessible either through its app or its website.
The claimants had aimed to establish a class to present market manipulation allegations against Robinhood Markets, Inc., Robinhood Financial LLC, and Robinhood Securities, LLC under federal securities laws. The lawsuit alleges market abuse by Robinhood due to trading restrictions levied during the early 2021 "meme stock" short squeeze. The rising market turbulence in January of that year prompted regulators to up the deposit requirements for clearing brokers, including Robinhood, to manage risks associated with pending trades.
When Robinhood couldn't fulfill these enhanced deposit requirements, it sought another way to appease the regulators. The regulators ended up waiving the requirements provided Robinhood imposed limits on trading certain stocks by its clients. Robinhood blamed the restrictions on market instability, adamantly dismissing any cash flow problems. However, the claimants argue that Robinhood deliberately manipulated the market with these limitations, choosing to omit liquidity issue acknowledgments while misleadingly citing market volatility.
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Robinhood requested the court to decline the class certification, citing the inadequacy of class representatives and arguing that issues of individual reliance and damages would surpass general interests. On the other hand, the plaintiffs argued that their representatives were appropriate and that class certification was apt for the case.
The court recognized that the plaintiffs have indeed proven, for the most part, that their case and representatives align with class treatment criteria. Nevertheless, they failed to convince the court that issues of individualized reliance wouldn't dominate.
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Published At
11/15/2023 12:53:08 PM
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