The California Northern District Court has granted a motion by Robinhood to dismiss a lawsuit regarding its pre-IPO claims. The relevant order was signed on February 10, 2023 by Judge Edward M. Chen.

Let’s recall that in December 2021, Philip Golubowski filed a complaint in the California Northern District Court. The complaint targets Robinhood, its senior management (including Vlad Tenev), as well as the underwriters of Robinhood’s IPO.

The plaintiff purchased shares of Robinhood’s common stock that were issued pursuant and traceable to the Registration Statement and Offering, and claims that he was damaged thereby.

He brought a federal class action under §§11, 12, and 15 of the Securities Act of 1933 (“Securities Act”) against (i) Robinhood, (ii) certain of the Company’s senior executives and directors who signed the Registration Statement, effective July 28, 2021, issued in connection with the Company’s initial public offering, and (iii) the underwriters of the Offering.

The plaintiff alleges that the Registration Statement and Prospectus (filed with the SEC on July 1, 2021 and July 30, 2021, respectively), including all amendments thereto, contained materially incorrect or misleading statements and/or omitted material information that was required by law to be disclosed.

Plaintiffs claim that, in the pre-IPO Offering Documents, Robinhood misrepresented both (1) the pre-IPO KPI decline and (2) the customer-centric business strategies at Robinhood.

The Judge found that Plaintiffs’ complaint failed sufficiently to plead that Robinhood’s KPI disclosures contained any false or misleading statements, because Robinhood accurately reported historical data (2019 and 2020). The complaint, the Judge says, does not allege that the decline of KPIs in May, June, and July (up to July 28, 2021, the date the Offering Documents were filed) were historically extraordinary. Moreover, the complaint included warnings regarding future growth (for 2021 onwards).

Further, Robinhood’s Offering Documents contain only generalized statements of corporate opinion and optimism that do not make any factual misrepresentations.

The Judge noted that the plaintiffs allege not that Robinhood falsely misrepresented any facts but merely that Robinhood failed to live up to its lofty opinions and goals of financial democratization, customer support, and platform reliability. But corporate ineptitude alone does not constitute a violation of the Securities Act.

And it can be simultaneously true that Robinhood faced some customer service controversies while overall building a trusted brand that strove to create a positive customer service experience.

Plaintiffs’ argument also incorporates complaints that Robinhood should have implemented a different corporate strategy—for instance, restricting investors from “accessing riskier trading methods” such as “margin trading” and “option trading.” But Plaintiffs’ disagreement about how to “democratize finance” on a trading platform does not mean that Robinhood violated the Securities Act by choosing a different corporate approach.

Because the Court cannot conclude that Plaintiffs are not able to amend the complaint to assert additional allegations which would state a claim (e.g., allegations of specific contextual information demonstrating that the decline in KPI and cryptocurrency trading levels in the two to three months before the filing of the Offering Documents were extraordinary and indicative of larger future trends known to the management or through which management should have known would have a material impact on future performance and which were not adequately disclosed), Plaintiffs are given the opportunity to amend their complaint.