Apex Clearing claims it did not breach any duties during Jan 2021 short squeeze
Apex Clearing continues to fight a lawsuit regarding its actions during the January 2021 short squeeze. The complaint against Apex Clearing forms part of a multi-district litigation which also targets Robinhood.
The traders who brought this lawsuit insist that securities brokers have a duty to act in good faith and in the best interest of their customers. The traders argue that on January 28, 2021, Apex Clearing Corporation violated its fundamental, well-established duties by taking unprecedented action. It prevented its customers from buying certain highly liquid, in-demand stocks for approximately 3-1/2 hours for their own financial self-interest and to the financial detriment of their customers.
The plaintiffs argue that this Market Suspension was designed to and did cause Apex’s own customers to lose money on the very same stocks that Apex had previously sold to those customers. Apex concedes that if the trading price of AMC, GME and/or KOSS went up, Apex perceived a risk to its ability to meet a potential increased collateral funding obligation.
On July 13, 2022, Apex Clearing filed its reply to the traders in the Florida Southern District Court.
According to Apex, the traders fail to allege or explain how Apex’s brief exercise of its clear right to refuse to accept new purchase orders for three meme stocks violated any duty owed by Apex to the plaintiffs or violated any agreement.
The company argues that the plaintiffs reframe their case as based on a novel duty requiring clearing brokers not to take actions- such as moving a security to a closing-only position – that negatively could affect the value of a security purchased through an introducing broker that uses the clearing broker. Plaintiffs’ latest complaint depends on the new theory that, once an introduced customer purchases a security, and the purchase is cleared through Apex, Apex then owes a duty to that downstream customer to continue to facilitate trades of that security to other investors.
Apex Clearing says:
“Plaintiffs identify no legal authority for their proposed duty because none exists. Plaintiffs’ theory would upend the roles of clearing brokers and interfere with the intended functioning of the securities trading system. Nor do Plaintiffs cite a contract, because the relevant agreement says the opposite of what Plaintiffs propose”.
Moreover, Apex says, the plaintiffs continue to argue without support that Apex somehow breached a common law duty (i) by not protesting against the SEC-regulated market utilities responsible for collateral requirements, (ii) by not removing its trading restrictions in some amount of time less than 3 hours and 25 minutes, and (iii) by not having unlimited capital on hand.
But plaintiffs never identify any authority supporting the existence of a duty Apex could have breached, Apex says. Nor do Plaintiffs adequately explain how the trading restriction breached any duty or obligation in the face of Apex’s unqualified contractual right to refuse to clear Plaintiffs’ trades “at any time and for any reason.”
Apex concludes that the Court should dismiss Plaintiffs’ negligence, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, and tortious interference claims with prejudice.