With Robinhood’s initial public offering imminent, two consolidated proposed class action complaints allege the buy-side trading restrictions implemented by the popular stock trading platform and other brokers earlier this year for certain “meme stocks” caused billions in market capitalization losses—and that a handful of market players ran afoul of federal antitrust laws in order to stem their financial bleeding.
One consolidated complaint, filed on July 27 in Florida federal court, alleges Robinhood and other brokers, by taking the unprecedented action of blocking access to their trading systems in January amid the GameStop trading frenzy, wiped away more than $10 billion in “hot stock” market caps with the push of a button. The related case, also filed on July 27 in Florida, alleges a gang of brokers, clearing houses and market makers engaged in an anticompetitive scheme whereby they effectively prevented individual investors from participating in a free and open market so as to “protect each other, and to stop hemorrhaging losses” from the accumulation of stocks initially intended to be sold short.
The sprawling cases now represent the more than 55 lawsuits centralized in May into multidistrict litigation in the Southern District of Florida. The filings separate investors’ allegations into two tracks, with one centered on claims involving Robinhood and a stable of other brokers and another focused on the alleged antitrust violations.
Robinhood is set to go public on July 29 in an much-anticipated IPO that’s expected to give the company a total market capitalization of around $35 billion.
The case against Robinhood and Apex Clear Corporation alleges the former “aggressively recruited” traders through marketing and “addictive user interfaces” to trade shares of certain hot stocks it knew to be “extremely volatile”, including GameStop, BlackBerry, Nokia, AMC, Bed Bath & Beyond and others, yet failed to protect itself, the market and customers from the risks that come with such trading. According to the filing, Robinhood lacked the appropriate cash reserves to meet the clear margin requirements needed to support the market activity it was facilitating. From the complaint:
“While Robinhood built its business to attract inexperienced, first-time traders, who focused on these ‘hot stocks,’ it failed to sufficiently capitalize its business according to the rules designed to protect the market and traders from at-risk brokers that maintain high concentrations of volatile stocks.”
Robinhood was undercapitalized by billions and wholly unprepared to handle the events of January 2021, the complaint says, noting that the company’s actions are just the latest chapter in a history “replete with serious and profound regulatory failures.” As a result of Robinhood and Apex’s conduct, including their one-way trading restrictions, the plaintiffs and proposed class members were forced to sell their shares at artificially suppressed prices or, alternatively, watch as the value of their holdings sank precipitously, the lawsuit contends, adding that Robinhood “continues to operate an undercapitalized business without adequate risk controls” ahead of its IPO.
The consolidated antitrust suit alleges a litany of apparent co-conspirators—brokers, market makers and clearing houses—attempted to protect their highly speculative short positions on certain stocks leading up to January 27, 2021 by conspiring to prevent purchases from individual investors. The brokerage defendants, according to the suit, restricted retail investors from buying certain securities on their platforms, which thereby stopped prices from going up, “predictably and foreseeably” caused a loss of confidence in the assets and led to a “panic selloff.” The conduct among the companies was driven by a central goal of keeping share prices down, the suit alleges:
“Defendants and their co-conspirators forced Retail Investors to choose between selling the Relevant Securities at a lower price or holding their rapidly declining positions in the Relevant Securities. Defendants did so with the propose [sic] of driving down the prices of the Relevant Securities. 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.”
ClassAction.org’s previous coverage of Robinhood can be found over on our blog and newswire.
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