Stock traders affected by the January 2021 short squeeze and Robinhood have reached an impasse on discovery matters as multi-district litigation targeting the company continues at the Florida Southern District Court.

Earlier this week, Robinhood Markets, Inc., Robinhood Financial LLC and Robinhood Securities, LLC submitted Discovery Memorandum regarding Robinhood’s Set of Requests for Production directed to Plaintiffs in the federal securities tranche of the multi-district litigation. The parties have reached an impasse on three requests.

The first request seeks “all Documents, Communications or Social Media Posts concerning Robinhood or this Action.” Plaintiffs do not dispute that these documents are relevant; rather, the parties’ disagreement concerns the period of time for production.

Robinhood requests that the Court compel the plaintiffs to produce documents concerning this Action or Robinhood from January 28, 2021 to the present. The traders insists that the requested documents are irrelevant.

The second request seeks “documents sufficient to identify each of plaintiffs’ holdings, investments, and transactions in any securities other than the Relevant Securities during the Relevant Time Period.”

The traders refused to produce documents responsive to this request, asserting that such documents are irrelevant. Robinhood disagrees and argues that, in a securities case, Plaintiffs’ overall portfolios are relevant for multiple reasons, including because they demonstrate Plaintiffs’ investment strategies and therefore may be probative of the reasons Plaintiffs traded in the Stocks at Issue. This bears on whether a Plaintiff is atypical or subject to unique defenses, as well as whether the Plaintiff relied on the integrity of the market in trading in the Stocks at Issue (the Basic presumption of reliance).

The third request seeks certain schedules to Plaintiffs’ income tax returns for the most recent three years.

Plaintiffs have refused to produce documents responsive to this Request on the ground that they are irrelevant. Robinhood has agreed to limit the Request to Schedules B and D of Plaintiffs’ federal tax returns, which concern dividends and capital gains, respectively. Plaintiffs rejected that compromise.

Robinhood says that the income tax implications of the transactions at issue are relevant to whether Plaintiffs suffered losses or whether tax treatment may have motivated Plaintiffs to trade in the Relevant Securities.

The Consolidated Class Action Complaint (CCAC) contains two claims for relief. Count I alleges that Robinhood manipulated the prices of the Affected Stocks in violation of section 9(a) of the Securities Exchange Act of 1934. Count II alleges an identical theory, but it relies on section 10(b) and rule 10b-5 promulgated thereunder.

• Count I contains two subclaims under sections 9(a)(2) and 9(a)(4), respectively. Plaintiffs allege that Robinhood violated section 9(a)(2) by intentionally manipulating the market to artificially depress the prices of the Affected Stocks. As for section 9(a)(4), Plaintiffs allege that Robinhood misstated or omitted material facts to mislead investors into thinking that it did not have a liquidity problem — a problem that would cause Robinhood to lose investors, customers, money, and relatedly, the chance at a lucrative initial public offering.
• Count II alleges that Robinhood manipulated the market when it (1) raised margin requirements (2) canceled purchase orders for the Affected Stocks, (3) closed out options in AMC and GME early, and (4) prohibited and restricted purchases of the Affected Stocks on its platform. These actions allegedly “created a false impression of actual demand for the Affected Stocks” and “artificially increased supply of the Affected Stocks.

In August 2022, the Court partially dismissed the complaint but left the bulk of the claims to which Robinhood had to respond.

On September 12, 2022, Robinhood Markets, Inc., Robinhood Financial LLC and Robinhood Securities, LLC filed their answer to the Consolidated Class Action Complaint filed by Lead Plaintiff Blue Laine-Beveridge and named Plaintiffs Abraham Huacuja, Ava Bernard, Brandon Martin, Brendan Clarke, Brian Harbison, Cecilia Rivas, Garland Ragland Jr., Joseph Gurney, Santiago Gil Bohórquez, and Trevor Tarvis, and asserted their affirmative and other defenses.

Overall, Robinhood denies each and every allegation contained in the Complaint, including, without limitation, the Table of Contents, headings, sub-headings, footnotes and non-numbered paragraphs contained in the Complaint. Robinhood’s answer also included 22 affirmative defenses.

The Court will hold a Zoom Discovery Hearing on March 3, 2023 regarding Robinhood’s discovery motion.