Investors pursuing legal action against Robinhood over trading restrictions imposed in early 2021 have faced another setback in court after the Florida Southern District Court rejected the request for class certification by the plaintiffs on Nov. 13, 2023.
Chief Judge Cecilia M. Altonaga said that after thoroughly considering the written submissions, record, and relevant law, the plaintiffs’ motion was rejected because they could not persuade the court that issues of individualized reliance would not be prevalent.
Robinhood is a platform that provides commission-free trading for stocks, ETFs, options, and cryptocurrencies. Users can trade these financial instruments via its app or website without incurring traditional fees.
The plaintiffs aimed to certify a class asserting market manipulation claims under federal securities laws against Robinhood Markets, Inc., Robinhood Financial LLC, and Robinhood Securities, LLC.
The lawsuit centers on accusations of market manipulation by Robinhood, stemming from its trading limitations in early 2021 during the “meme stock” short squeeze. Notably, heightened market volatility in January 2021 led regulators to increase deposit requirements for clearing brokers, including Robinhood, to mitigate the risks associated with unexecuted trades.
Robinhood could not meet the increased deposit requirements and pursued an alternative solution to satisfy regulators. The company succeeded when regulators granted a waiver for the deposit requirements, contingent on Robinhood implementing restrictions on its customers’ ability to trade specific stocks.
The platform attributed its restrictions to market volatility, vehemently denying any liquidity issues. Plaintiffs claim the platform manipulated the market by imposing restrictions, presenting “half-truths” about volatility while conveniently omitting any acknowledgment of liquidity challenges.
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Robinhood urged the court to reject class certification, citing deficiencies in the class representatives and asserting that individualized issues of reliance and damages will overshadow common concerns. The plaintiffs contended that their representatives are sufficient, and the case is suitable for class certification.
The court acknowledged that, for the most part, the plaintiffs have shown that the case and their representatives are suitable for class treatment. However, they could not persuade the Court that issues of individualized reliance would not be prevalent.
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