Traders to issue document subpoenas to DTCC in short squeeze lawsuit against Robinhood
The multi-district litigation against Robinhood over its actions during the January 2021 short squeeze continues in the Florida Southern District Court.
Earlier this week, the plaintiffs in the Federal Securities tranche of the litigation and Robinhood submitted their Joint Planning and Scheduling Report.
The plaintiffs explain that they have served on a Robinhood a First Request for the Production of Documents. The request seeks, among other things, voluminous trading records in the nine Affected Stocks.
Plaintiffs also plan to issue third-party document subpoenas to, inter alia, Robinhood’s six market makers and to the Depositary Trust Clearing Corporation (DTCC) seeking voluminous trading records, communications, and related information for the nine Affected Stocks (that is, the stocks that were subject to trading restrictions in January 2021). The plaintiffs anticipate that it will take at least five to six months to obtain these critical documents and then another three or four months to analyze them with the assistance of one or more consultants.
Following their analysis, Plaintiffs will need at least three months to take at least 10 depositions.
Plaintiffs also anticipate that they will have to deal with discovery objections and may have to file motions to compel which could further delay receipt and analysis of these necessary documents. The traders anticipate serving these third-party subpoenas by November 1, 2022.
The parties in this lawsuit believe that settlement is unlikely at this time given their divergent views on the underlying factual and legal issues. The parties, however, agree settlement discussions may be beneficial in the future.
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.