This Monday, a federal judge dismissed a multi-district lawsuit filed against Robinhood, an online trading platform, for blocking trades in particular stocks during the “meme stock” short squeeze that occurred last January. In her 66-page move to dismiss, Chief U.S. District Judge Cecilia Altonaga for the Southern District of Florida noted that the plaintiffs’ responsibility to impose on Robinhood was “remarkably broad,” and that they had presented “absolutely no limiting premise to this conception of obligation.”
The stock prices of firms like GameStop, AMC, and BlackBerry surged in January when retail traders from the popular subreddit r/WallStreetBets collaborated to boost the price. Following the rise in stock prices, Robinhood, the platform via which many retail traders had purchased their shares, limited customers’ access to acquire particular equities, citing “recent volatility.” Many users were outraged by the decision, prompting some to launch lawsuits against the firm, alleging negligence and breach of fiduciary obligations. The lawsuits against the tech company were consolidated into a Multi-District Litigation case. The plaintiffs claimed that Robinhood owed them a duty to facilitate trading even when market volatility was high.
Robinhood Markets, Inc. is an American financial services firm based in Menlo Park, California, that is most known for pioneering commission-free stock, ETF, and cryptocurrency trading with a mobile app launched in March 2015. Robinhood is a FINRA-regulated broker-dealer that is also a member of the Securities Investor Protection Corporation. It is also registered with the US Securities and Exchange Commission. Interest gained on customers’ cash balances, selling order information to high-frequency traders (a practice for which the SEC started an investigation into the company in September 2020), and margin lending are the three main sources of revenue for the company. Robinhood has 31 million users and 1.6 million people on its cryptocurrency wallet waitlist as of 2021.
“Plaintiffs repackage their displeasure with the PCO limits as negligence allegations in this case. They are attempting to get exactly what the Customer Agreement that they freely accepted denied them: the right to trade without restrictions “she penned. According to a statement provided to The Hill by Robinhood, “We are glad to see that the court has determined the plaintiffs’ allegations in this action to be without substance, dismissing them and refusing to allow them to be re-stated. This further proves that the false claims levelled against Robinhood are without merit.”
In a statement to The Hill, Natalia Salas, an attorney for the plaintiffs in the case, said they planned to appeal Altonaga’s decision. “Our case exposed Robinhood’s internal documents, which demonstrate that they used user funds to mask their liquidity issues by allowing sales rather than purchases. Personnel even traded ahead of the public announcement of their intention to reduce trading volume “Salas explained.
“This behavior is blatantly in violation of industry standards, and it has damaged not only Plaintiffs, but a whole class of non-Robinhood consumers who are not governed by the Customer Agreement.”