Robinhood tries to buy time as “short squeeze” lawsuits pile up
Online brokerage Robinhood is trying to buy time, as the volume of litigation it faces in the United States continues to grow. The majority of these lawsuits accuse of the company of breach of contract and negligence, as well as of being a participant in a market manipulation scheme, due to its trading restrictions imposed during a period of increased stock market volatility.
A typical action that Robinhood has taken in response to these lawsuits is to ask for more time to prepare its response. Such a motion has been filed in several of the lawsuits targeting the brokerage.
For instance, on March 9, 2021, Robinhood Financial LLC, Robinhood Securities, LLC, and Robinhood Markets, Inc submitted a motion for extension of time at the New York Southern District Court. The document is filed in reply to the complaint brought by a trader – Brendon Nelson.
The trader accuses Robinhood of purposefully, willfully, and knowingly removing the stock “GME” from its trading platform in the midst of an unprecedented stock rise thereby depriving retail investors of the ability to invest in the open-market and manipulating the open-market.
According to the complaint brought by Nelson, on or about January 27, 2021 Robinhood, in order to slow the growth of GME and deprived their customers of the ability to use their service, abruptly, purposefully, willfully, and knowingly pulled GME from their app. Meaning, retail investors could no longer buy or even search for GME on Robinhood’s app.
Upon the plaintiff’s information and belief, Robinhood’s actions were done purposefully and knowingly to manipulate the market for the benefit of people and financial intuitions who were not Robinhood’s customers.
Since pulling the stock from their app, GME prices have gone up, depriving investors of potential gains. Additionally, in the event GME goes down, Robinhood has deprived investors of “shorting” GME in the hopes the price drops.
Robinhood continues to randomly pull other securities from its app for no legitimate reason, the complaint states.
In its motion filed on March 9, 2021, Robinhood notes the volume of litigation it faces. The brokerage explains that on February 5, 2021, the plaintiffs in Cheng et al v. Ally Financial Inc. et al, 21- cv-00781, filed a Motion for Transfer of Actions to the Northern District of California Pursuant to 28 U.S.C. § 1407 for Coordinated or Consolidated Pretrial Proceedings (“Motion”) with the Judicial Panel on Multidistrict Litigation (“JPML”). The Motion petitioned the JPML to transfer the Cheng action and 40 other cases, including the one brought by Nelson, and to establish a multidistrict litigation in the Northern District of California. On February 9, 2021, the JPML accepted the Motion for filing as In re January 2021 Short Squeeze Trading Litigation and ordered an accelerated briefing schedule. The hearing on the Motion before the JPML is scheduled for March 25, 2021.
In light of these circumstances, Robinhood requests an extension of their deadline to answer, move to dismiss or otherwise respond to the plaintiffs’ complaint from the current deadline of April 5, 2021 to April 30, 2021 or, if the transfer motion is granted, until the date by which the transferee judge orders Robinhood to move or otherwise respond to the complaint, whichever is later.