Robinhood tries to beat market manipulation claims in short squeeze lawsuit
Robinhood has opposed claims made by traders regarding its actions during the January 2021 short squeeze. On September 12, 2022, the broker filed an answer and a set of affirmative defences against a complaint brought by traders affected by the stock trading restrictions imposed by the company back in January 2021.
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 now has 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 includes 22 affirmative defenses.
For instance, the first defense says that the Complaint fails to state a claim for which relief can be granted. And, according to the second defense,Plaintiffs’ claims are barred because Plaintiffs have not suffered any legally cognizable injury and do not have standing to assert their claims.
The fourth defense states that Robinhood is not liable because it did not engage in any allegedly manipulative acts.
Further, Robinhood claims it is not liable because its alleged acts were fully disclosed to the market.
Robinhood also says that it is not liable because it did not willfully engage in any transactions for the purpose of inducing the sale or purchase of any security by others.
Robinhood further argues that it is not liable because it did not act with the purpose of reducing the price of any of the Affected Stocks.
Interestingly, Robinhood says that it is not liable because there are one or more intervening and/or superseding causes of the Plaintiffs’ claimed injuries. The company adds that those intervening and/or superseding causes include but are not limited to the manipulative, anti-competitive, or otherwise wrongful conduct of other market participants or other persons or entities over whom Robinhood exercised no control, and/or events outside Robinhood’s control.
Also, Robinhood says that it is not liable because Plaintiffs sustained no damages as a result of the conduct alleged in the Complaint, and/or failed to mitigate any damages sustained as a result of the conduct alleged in the Complaint.
Robinhood seeks judgment against the traders dismissing the entire action with prejudice and granting Robinhood its reasonable costs, expenses and attorneys’ fees.