Traders to count on operative complaint in short squeeze lawsuit against Robinhood
Less than a fortnight after the Court ruled that several claims against Robinhood survive the motion to dismiss by the broker, the traders accusing the company of market manipulation have made clear their stance about the future of the proceedings.
On August 22, 2022, a group of plaintiffs: Blue Laine-Beveridge, Abraham Huacuja, Ava Bernard, Brandon Martin, Brendan Clarke, Brian Harbison, Cecilia Rivas, Garland Ragland Jr., Joseph Gurney, Santiago Gil Bohórquez, and Trevor Tarvis filed a notice with the Florida Southern District Court.
The notice states that the traders will not amend their complaint against Robinhood but would rather stand by their operative complaint and proceed on the claims that have survived the Court’s Order on the motion to dismiss.
In January 2021, market volatility prompted regulators to raise deposit requirements for clearing brokers, including Robinhood, to ensure that they could cover the costs of unexecuted trades. Robinhood could not afford the new deposit requirements and sought another way to appease regulators. It succeeded after regulators agreed to waive the deposit requirements so long as Robinhood restricted its customers’ access to certain stocks.
What followed is disputed, but investors characterize it as market manipulation. While Robinhood restricted access to certain stocks, it did not want knowledge of its lack of liquidity to become widespread because such information might undermine Robinhood’s credibility with customers and investors alike. To divert the public’s attention away from Robinhood’s lack of liquidity, Robinhood blamed market volatility for its restrictions and vehemently denied any trouble with its own liquidity.
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.
In finding that most of the plaintiffs’ claims survive Robinhood’s motion to dismiss, the Judge noted Vlad Tenev’s media statements, as well as corporate communications.
Only Count I’s misrepresentation claim under 15 U.S.C. section 78i(a)(4) was dismissed. The remaining market manipulation claims under Counts I and II may proceed.