As the large-scale lawsuit brought by traders against dozens of brokers, clearing houses, and funds continues at the Florida Southern District Court, one of the defendants in the so-called antitrust tranche of the lawsuit – Citadel Securities, has responded to the allegations.

On August 30, 2021, Citadel Securities filed a motion to dismiss the complaint against it. The document, seen by FX News Group, names one basic reason for which, according to Citadel, the traders’ complaint has to be nixed – failure to state a claim.

This putative class action arises from historically unprecedented volatility in the securities markets during the week of January 25, 2021. Spurred by social media and online forums, retail investors sent stock prices and trading volumes for certain stocks soaring, driving the price of GameStop, Inc. (“GME”) up 134% on January 27, 2021 alone. Other symbols increased between 200% and 300% that same day.

A frenzied interest in GME, AMC Entertainment Holdings, Inc. (“AMC”) and other “meme” stocks, which Plaintiffs label the “Relevant Securities,” pushed trading volatility to record levels.

Citadel explains that the unprecedented market volatility impacted brokerages in different ways and led market participants to take different actions in an effort to address the impact of the volatility. Clearing agencies (not named in this suit) imposed extraordinary capital requirements on brokerages, including defendants in this action, consistent with SEC regulations and designed to mitigate risk in volatile markets, according to Citadel. These sudden requests effectively required those brokerages to post massive amounts of capital (including more than $3 billion for one defendant) with only a few hours’ notice.

Citadel Securities claims it continued to facilitate the trading activity from its retail brokerage clients during the relevant time period without interruption or restriction every minute of January 28, 2021.

According to Citadel, the antitrust claim is predicated on the speculative contention that the “meme” stock prices would have been even higher but for the alleged conduct, combined with the absurd contention that every member of the putative class was harmed because they would all somehow have timed the market perfectly absent the restrictions and sold their shares of the “meme” stocks at a profit. But the claim fails from its inception and in fact has nothing to do with competition at all, Citadel argues.

Citadel says:

“Lacking evidence of an actual agreement—and even admitting that they do not know what Citadel Securities’ positions were in the Relevant Securities—Plaintiffs continue to insist that disparate trading restrictions, as implemented by Defendants, evidence an unlawful conspiracy. It is a conspiracy born of speculation and contradicted by logic”.

According to Plaintiffs, the real reason the Introducing Brokers introduced the disparate restrictions was because Citadel Securities—alleged to have a commercial relationship with some, but not all, of the defendants— sought to depress the prices of the Relevant Securities to protect Citadel Securities’ alleged short position.

According to Citadel, the traders offer zero direct evidence that:

  • (1) Citadel Securities actually held a short position in the Relevant Securities; or
  • (2) that any unlawful agreement existed between any two Defendants, never mind among all Defendants.

The alleged conspiracy is also implausible, Citadel insists. As Plaintiffs acknowledge, Citadel Securities’ business is predicated on facilitating trading activity. There is no allegation that Citadel Securities ever refused to facilitate trades in any of the Relevant Securities. Moreover, even if Citadel Securities did stand to benefit from a lower price in the Relevant Securities, none of the brokers did; they are not alleged to have bought or sold these securities for their own account.

Also, Citadel notes that restricting trading causes the brokers to lose revenue, and they are agnostic to the price of the Relevant Securities (no different from the thousands of other publicly traded securities). And they are not alleged to have received any financial benefit from Citadel Securities in return for joining the alleged conspiracy.

Finally, according to Citadel, this case is no more than a “securities complaint in antitrust clothing,” and therefore is implicitly precluded by the federal securities laws. Congress and the expert regulatory agencies have created a complex system of statutes and regulations that govern the functioning of the securities markets, including the conduct at issue here. Thus, even if Plaintiffs had adequately pleaded an agreement, they still could not pursue antitrust claims as a matter of law.

Citadel concludes that this case must be dismissed with prejudice.