Robinhood must face U.S. market manipulation claims over ‘meme stock’ rally, judge rules

By Jody Godoy and Hannah Lang

(Reuters) -Inventory buying and selling platform Robinhood Markets Inc should face market manipulation claims over restrictions it positioned on buying and selling throughout final 12 months’s “meme inventory” rally, a U.S. decide dominated on Thursday.

U.S. District Court docket Choose Cecilia Altonaga in Miami stated within the ruling that traders in GameStop Corp, AMC Leisure Holdings Inc and 7 different shares can proceed with a proposed class motion lawsuit alleging the restrictions artificially depressed share costs.

The lawsuit was one in all a number of instances introduced in opposition to the retail buying and selling platform after it quickly barred prospects from shopping for sure sizzling shares in January 2021, together with GameStop and AMC.

Shares of these firms surged to excessive highs due to a social media-fueled rally that finally led Robinhood and others to limit buying and selling within the affected securities, infuriating retail traders and rattling market confidence. The volatility precipitated main losses for hedge funds that had wager in opposition to the meme shares.

Robinhood had eliminated its customers’ potential to purchase sure shares for a day when its clearinghouse necessities ballooned to a $3 billion demand for money – an obligation set by the Nationwide Securities Clearing Company. The brokerage additionally quickly restricted the variety of shares customers might purchase in some sizzling shares.

Choose Altonaga oversees a sprawling set of lawsuits alleging Robinhood and others violated U.S. legal guidelines of their response to the social media-driven rally.

She beforehand dismissed claims that the corporate and different brokerages illegally conspired to halt a “brief squeeze” that was inflicting billions of {dollars} of losses for hedge funds that have been betting on falling inventory costs. The decide additionally dismissed retail traders’ claims that Robinhood was negligent and breached its responsibility to prospects.

Within the ruling printed Thursday, the decide denied Robinhood’s movement to dismiss separate allegations that it engaged in market manipulation to artificially depress the costs of the 9 shares by canceling buy orders, liquidating its prospects’ shares and shutting out choices. 

Whereas the restrictions alone wouldn’t help a declare of market manipulation, along with “opaque and conflicting statements made to cover its lack of capital” they “evince an intent on the a part of Robinhood to artificially depress share costs for its private profit,” the decide wrote.

The corporate should additionally face the merchants’ declare that the alleged manipulation violated a federal statute prohibiting securities fraud, the ruling stated.

The decide nonetheless dismissed a declare that the brokerage engaged in market manipulation to induce traders to promote their shares.

In an announcement, Robinhood’s affiliate normal counsel of litigation and regulatory enforcement, Cheryl Crumpton, stated the corporate continues to face by its actions, which it believes have been “acceptable and essential to help our prospects.”

“The court docket has not but made any findings of truth or dominated on the deserves — and we are going to proceed to vigorously defend ourselves on this matter,” Crumpton stated.

(Reporting by Jody Godoy in New York and Hannah Lang in Washington; modifying by Jonathan Oatis, Leslie Adler and Aurora Ellis)