Did brokers breach their fiduciary duties of care, loyalty, and good faith to their customers in connection with the Reddit meme stocks?
At end of January 2021, Robinhood and other brokers halted trading and/or restricted purchases and/or holdings of multiple stocks for more than a single trading session – January 28th – extending some of its restrictions for six trading sessions, through February 4th.
Some of the suspended stocks included GameStop Corp. (GME), AMC Entertainment Holdings Inc. (AMC), American Airlines Group Inc. (AAL), Bed Bath & Beyond Inc. (BBBY), BlackBerry Ltd. (BB), Castor Maritime, Inc. (CTRM), Express, Inc. (EXPR), Koss Corporation (KOSS), Naked Brand Group Ltd. (NAKD), Nokia Corp. (NOK), Sundial Growers Inc. (SNDL), Tootsie Roll Industries, Inc. (TR), or Trivago N.V. (TRVG)
This post is open for investors to gather facts, and findings and track their exposure to related lawsuits. We invite investors and shareholders to contribute to this investigation for their own benefit, add events to the factual timeline below and vote on events’ pertinence.
A lawsuit was subsequently filed. We will update this post as it unfolds.
Because the events at cause are essentially the same as in the securities case, we have disabled this timeline. But don’t worry, you can access the factual timeline of relevant events by visiting the Robinhood Markets, Inc. (Jan. 2021 Short Squeeze – Securities) case page:See more on Factual Timeline
This is the first-identified class-action complaint alleging negligence and breach of fiduciary duties. The case was filed on behalf of all persons or entities in the United States that:
“All citizens of the United States who own or owned accounts on Robinhood’s trading platforms and as of January 27, 2021 at 5 pm EST own or owned securities of “GME”, “BB”, “NOK”, “AMC”, “BBBY”, “EXPR”, and “KOSS” which Defendants did not allow the purchase of those securities on January 28, 2021 and for Defendant TD Ameritrade, on January 27, 2021.“
Please note that numerous class action complaints against Robinhood (and other entities) were filed in early 2021. The cases were later consolidated and grouped by types of violations (see “Lawsuit Progression”). For convenience purposes, this tab only details the first identified complaint alleging negligence & breach of fiduciary duties.
For a complete list of class action complaints initially filed with the courts in connection with the January 2021 Short Squeeze, click here.
To access the class action cases grouped by types of violations, please refer to our additional pages:
Defendants had a duty to exercise reasonable care in conducting and facilitating
transactions for their customers.
Defendants had a duty to exercise reasonable care in providing trades on the free,
open market for their customers.
Defendants unlawfully breached their duties by, among other things, (i) removing Subject Securities without notice from purchase through their trading applications; (ii) allowing only sales of the Subject Securities without allowing purchases, (iii) failing to provide financial services related to Subject Securities; (iii) failing to notify customers in a timely manner of the Subject Securities “blackout.”
The court issued an order appointing the lead plaintiff and lead counsel.
1. All persons or entities in the United States that: held shares, or call options for shares, of any of GME, AMC or KOSS as of the end of the day on January 27, 2021, and sold or were forced to let such call options expire worthless, between January 28, 2021, and February 23, 2021. 2. All Apex broker-dealer direct customers and shared customers who held shares or call options for shares of AMC, GME, and/or KOSS as of the end of the day on January 27, 2021, who sold or were forced to let such call options expire worthless, during the class period, and suffered damages. 3. All Apex broker-dealer direct customers and shared customers who placed a sale order on shares, or on call options for shares, of AMC, GME, and/or KOSS, whose orders were delayed during the class period, and suffered damages. 4. All Apex broker-dealer direct customers and shared customers who placed a buy order for shares, or for call options for shares, of AMC, GME, and/or KOSS, whose order was initially accepted by Apex or the Apex introducing broker-dealers, whose order was ultimately rejected by Apex or the Apex introducing broker-dealers during the class period, and suffered damages.
A securities class action lawsuit is a lawsuit on behalf of investors considered in a similar position, who purchased or sold securities of a company during a certain period and suffered losses because of an alleged wrongdoing. Security is often broadly defined to include bonds, stocks, options, derivatives, and other instruments.
Section 10b of the Securities Exchange Act of 1934 makes it unlawful to “use or employ, in connection with the purchase or sale of any security” a “manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.” 15 U.S.C. § 78j(b). It is therefore forbidden to: employ any device, scheme, or artifice to defraud; make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made not misleading; or engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Generally, to be successful, the plaintiff must plead the following:
We invite you to read this article from the American Bar Association which, although from 2014, provide ample information to explore the world of class actions brought under section 10b of Securities Exchange Act of 1934.
Section 11 of the Securities Act of 1933 provides “an express right of action for damages . . . when a registration statement contains untrue statements of material fact or omissions of material fact.” (Thomas Lee Hazen, Treatise on the Law of Securities Regulation, §7.3 at 581 (4th ed. 2002)). Practically, buyers in an initial public offering (IPO), relying on the registration statement and prospectus, are given the right to file a complaint against the company and other signatories for losses sustained as a result of the deficient registration statement and prospectus.
Generally, at least four elements must be plead for the claim to survive:
A shareholder derivative lawsuit is a lawsuit brought by a shareholder of a company, on behalf of the company, against an insider (director, board of directors, executives) or a third-party to redress wrongs and harms to the company. Simply speaking, this mechanism exists because one cannot expect directors and insiders to sue themselves for harms they have done to the company.
The Private Securities Litigation Reform Act (PSLRA) of 1995 was enacted to tighten requirements for securities class actions to be brought in the United States. One of the mechanism put in place was a 60-day period, following the filing of the initial securities class action, for any shareholder considered in similar position to the one filing the initial class action complaint, to ask to be named lead plaintiff. Practically, any time a securities class action falling under the PSLRA is filed with a court, law firms advertise their willingness to pursue the case and invite other investors similarly situated to contact them.
The lead plaintiff in a securities class action is a shareholder who suffered losses related to the purchase or sale of a company’s security during a certain period of time, that is appointed with its choice of counsel to represent the rest of the similarly situated shareholders. To be appointed lead plaintiff, you need to contact a law firm, have them examine your losses and agree to be represented by them and ask to make a motion with the court to be appointed lead. The court will then look at all the motions from the different shareholders and make its decision based on a certain set of criteria. Your inability to be lead plaintiff shall not prevent you from any potential recovery in the event of a settlement.
A class period is a set period of time during which the purchasers or sellers of a company’s security claim in a class action lawsuit to have suffered losses. Class periods are based on the merits of the case and may evolve with the litigation.
A class action complaint will define the initial class of investors: the class period and the persons included in the class. You should look at the definition of the class to determine whether you are included or not. However, the class definition will evolve with the litigation. Its definition is very likely to change between the initial complaint filed and the possible settlement. Generally speaking, you should rely on the definitions of the class stated in a stipulation of settlement to determine whether or not you will be entitled to any recovery (see below about the opting-out mechanism).
You may. The mechanism is called opting-out of class. A lead plaintiff will agree on the potential recovery ratio in a settlement. You may have an interest in opting-out of a class if you have sustained large losses and believe bringing a separate lawsuit would entitle you to a larger ratio of recovery.
You may be able to bring a claim to arbitration in certain scenarios. We encourage you to contact a law firm of your choice to inquire about such alternative dispute resolution mechanism.