Dozens of short squeeze lawsuits to be centralised in Florida
A couple of months after the online trading world was marked by a period of heightened volatility and rigid restrictions on trading in certain stocks, it appears that the raft of lawsuits concerning the January 2021 short squeeze will continue as a one “mega” centralized action.
According to a transfer order signed by the Judicial Panel on Multidistrict Litigation on April 1, 2021, at least 39 cases targeting Robinhood and a set of other online trading firms will continue as “mega litigation” in Florida.
The order, seen by FX News Group, notes that all responding defendants support centralization. Robinhood Markets, Inc., Robinhood Financial, LLC, and Robinhood Securities, LLC (collectively, Robinhood) support centralization in the Northern District of California or, alternatively, in the Middle District of Florida. The Charles Schwab Corporation, Charles Schwab & Co., Inc., TD Ameritrade, Inc., TD Ameritrade Clearing, Inc., and TD Ameritrade Holding Corporation (collectively, Schwab) support centralization in the Middle District of Florida. Defendants Apex Clearing Corporation, Candlestick Capital Management LP, and Melvin Capital Management LP support centralization in the Southern District of Texas or, alternatively, in the Middle District of Florida.
Four other defendants did not file briefs in response to the motion, but submitted Notices of Waiver of Oral Argument indicating support for centralization in either of these districts. Additionally, fourteen non-responding defendants filed Notices of Waiver of Oral Argument indicating support for centralization with no position on district.
On the basis of the papers filed and the hearing session held, the Panel finds centralization is appropriate as the 39 actions involve common questions of fact, and that centralization in the Southern District of Florida will serve the convenience of the parties and witnesses and promote the just and efficient conduct of this litigation.
These actions share factual questions arising from trading restrictions imposed by Robinhood and other brokers in late January 2021 in response to a dramatic rise in trading and share prices for a group of “meme stocks,” such as GameStop and AMC Entertainment.
The frenetic trading in these stocks by retail traders allegedly was spurred by members of a Reddit forum called “r/WallStreetBets,” who realized that, as the value of these securities increased, several major hedge funds and institutional investors that had taken short positions on these securities would be exposed to potentially ruinous losses (i.e., they were subject to a “short squeeze”).
Beginning on January 28, 2021, however, certain on-line trading platforms primarily used by the retail traders—in particular, Robinhood—restricted the ability of retail investors to purchase the relevant securities. Plaintiffs allege that these trading restrictions created a one-way sell situation and resulted in a steep decline in share prices for the meme stocks, which in turn caused plaintiffs economic injury and allowed the various institutional investors to cover their short positions in these securities.
All the actions in this litigation arise from the trading restrictions imposed by the on-line trading platforms.
Nearly every action asserts similar claims for breach of contract, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, and negligence. Numerous actions also assert causes of action under antitrust, securities, and state consumer protection laws.
The Panel determines that the Southern District of Florida is an appropriate transferee district for this litigation. There are ten Short Squeeze actions pending in Florida, four of which are in the Southern District.
According to the parties, some of the events central to this litigation—in particular, Robinhood Securities’ decision to restrict trading on the meme stocks, took place in Florida.
The Panel ordered that the “short squeeze” trading actions pending outside the Southern District of Florida are transferred to the Southern District of Florida and, with the consent of that court, assigned to the Honorable Cecilia M. Altonaga for coordinated or consolidated pretrial proceedings.