Robinhood claims plaintiffs in short squeeze lawsuit cannot adequately prosecute action
The legal proceedings targeting Robinhood over the trading restrictions it introduced in January 2021 continue at the Florida Southern District Court.
Shortly after the parties made it clear that they are far from reaching any agreement, Robinhood has submitted its opposition to the motion by the plaintiffs to certify class.
Lead Plaintiff Blue Laine-Beveridge and the plaintiffs named in the Amended Consolidated Class Action Complaint had moved for an order certifying the following Class:
“All persons or entities who held common stock in AMC Entertainment Holdings, Inc. (“AMC”), Bed Bath & Beyond Inc. (“BBBY”), BlackBerry Ltd. (“BB”), Express Inc. (“EXPR”), GameStop Corp. (“GME”), Koss Corp. (“KOSS”), Tootsie Roll Industries Inc. (“TR”), or American Depositary Shares of foreign-issuers Nokia Corp. (“NOK”) and trivago N.V. (“TRVG”) (collectively “the Affected Stocks”) as of the close of trading on January 27, 2021, and sold any such shares between January 28, 2021, and February 4, 2021 (“Class Period”)”.
On June 7, 2023, Robinhood filed its response to the class certification motion. Robinhood insists that it was retail investors like the Named Plaintiffs who drove up the price of the specified stocks in a social media frenzy that created a bubble doomed to burst. During that frenzy, the prices for those stocks were completely untethered from the actual value of the underlying companies. This inescapable fact makes this case unsuitable for resolution as a class action, the brokerage says.
According to the defendants, unlike in a typical securities fraud case for exchange-traded stocks, in which a defendant makes a common misrepresentation and the court can presume class members relied on it, Plaintiffs here cannot show that members of the putative class, including investors who did not trade on (and may never have heard of) Robinhood, relied on any statement Robinhood made regarding the reasons for its trading restrictions in deciding whether to hold or sell their shares of other companies’ stock. Nor can Plaintiffs establish that they relied on the integrity of the market.
Robinhood argues that the evidence—including the sworn testimony of numerous Named Plaintiffs— establishes that many of the putative class members traded with full knowledge of black swan market events, attempting to take advantage of real or perceived short squeezes driving these stocks to their breathtaking prices. Predictably, the bubble burst and the stocks returned to their true prices. This coincided with Robinhood’s imposition of the purchasing restrictions, which all but one Named Plaintiff admit they knew about when they sold their shares. As with any bubble, some people made money and, depending on timing, others lost money. Plaintiffs now seek to certify a class of individuals who purportedly lost on their trades when the bubble burst.
Robinhood notes that Named Plaintiffs lack standing to bring certain claims and are subject to unique defenses that preclude certification under the typicality requirement of Rule 23(a)(4). Discovery has shown that the proposed lead plaintiff, Blue Laine-Beveridge, is not a class member at all or at a minimum, he is atypical because he profited on his trades. Without a lead plaintiff, the class cannot be certified.
Moreover, all of the Named Plaintiffs testified that they did not rely on the integrity of the market and instead engaged in unusual trading practices—such as not conducting research, trading based on price movements, buying and selling the same security in a single trading day and investing at the recommendation of social media influencers. These haphazard trading practices, which are not typical of all traders, give rise to unique defenses. Further, none of the Named Plaintiffs suffered losses from transactions in four of the Affected Stocks (BBBY, KOSS, TR and TRVG), so they lack standing to sue regarding those stocks.
Finally, Robinhood insists that the Named Plaintiffs will not adequately prosecute the action as required by Rule 23(a)(4).
Robinhood states:
“Named Plaintiffs’ deposition testimony demonstrates that they have failed to take an active role in overseeing the case and do not even understand the substance of the action. In the most egregious display of a named plaintiff’s disregard of his obligations, one Named Plaintiff sat for his entire four-hour deposition while he was driving his car”.
When asked to describe the putative class he seeks to represent, Mr. Gurney testified that the class is comprised of “human beings who have a complaint.”
Robinhood requests that the Court deny Plaintiffs’ motion for class certification.