At end of January 2021, Robinhood 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.
On January 29th, when other retail brokers had already removed any share purchasing restrictions in force on January 28th, Robinhood increased the number of issuers subject to restrictions – from 13 to 23 to 50 – and did not limit the issuers affected to so-called “meme stocks”, ultimately including Starbucks and General Motors.
On January 29th, Robinhood reduced the number of shares a customer could purchase and hold in various issuers multiple times over the course of a single trading session, causing price declines in the market prices of those stocks in the wake of those restrictions.
Even after raising a $3.4 billion capital cushion against the risk of unsettled positions in its portfolio, Robinhood slowly released its restrictions over the course of the trading week to avoid a repeat of the price rebound on January 29th that Robinhood actively tamped down with its additional restrictions.
Did Robinhood’s course of conduct operate as a fraud upon the owners of AMC Entertainment Holdings, Inc. (AMC), Bed Bath & Beyond Inc. (BBBY), BlackBerry Ltd. (BB), Express Inc. (EXPR), GameStop Corp. (GME), Koss Corp. (KOSS), Tootsie Roll Industries Inc. (TR), or American Depositary Shares of foreign-issuers Nokia Corp. (NOK) and trivago N.V. (TRVG) (also referred to as the “Affected Stocks”)?
Did Robinhood manipulate the market by canceling purchase orders for the Affected Stocks placed before the markets opened for trading on January 28, 2021? By closing out options positions in AMC and GME early? By prohibiting and later restricting purchases of the Affected Stocks on the Robinhood trading platform? By abruptly raising margin requirements for Robinhood’s customers, forcing those who could not meet the margin calls for the Affected Stocks to sell some or all of their holdings?
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.
Congresswoman Maxine Waters (D-CA), Chairwoman of the Committee on Financial Services, and Congressman Al Green (D-TX), Chair of the Subcommittee on Oversight and Investigations, release a Majority staff report entitled, “Game Stopped: How the Meme Stock Market Event Exposed Troubling Business Practices, Inadequate Risk Management, and the Need for Regulatory and Legislative Reform.”
Over the course of 16 months, the Committee staff conducted more than 50 interviews with representatives from 19 institutions and combed through more than 95,000 pages of documents as part of its investigation.
“The GameStop report is the culmination of a long, detailed investigation, including multiple hearings, by the U.S. House Committee on Financial Services. The report reached multiple key conclusions, including the finding of existing deficiencies with the current market regulatory structure. My hope is that the report’s findings will lead to improvements in the functioning and regulation of the U.S. securities markets and result in a more fair and secure system for all investors,” said Representative Green.
The Committee Staff identified four key findings from its investigation, including that:
“Committee Staff Policy Recommendations […]”
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This is the first-identified class-action complaint alleging violations of securities laws. The case was filed on behalf of:
“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 two main cases alleging securities violations: the first identified complaint and the first complaint for which a P.S.L.R.A. notice was filed.
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 violated 15 U.S.C § 78 by ways including:
a. effecting a series of transactions in the Subject Securities, creating actual or apparent active trading in such security, or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others;
b. inducing the purchase or sale of the Subject Securities, by the circulation or dissemination in the ordinary course of business of information to the effect that the price of any such security will or is likely to rise or fall because of market operations of any one or more persons conducted for the purpose of raising or depressing the price of the Subject Securities;
c. making for the purpose of inducing the purchase or sale of the Subject Securities statements which were at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, and which Defendants knew or had reasonable ground to believe was so false or misleading,
d. including but not limited to that they presented an open market trading platform that
would continuously operate so that free market trading would occur;
e. effecting a series of transactions for the purchase and/or sale of the Subject Securities for the purpose of pegging, fixing, or stabilizing the price of the Subject Securities in contravention of such rules and regulations of the Securities and Exchange Commission;
f. effecting manipulative short sale of securities, including the Subject Securities;
g. violating the rules of the Commission to prevent manipulation of price levels of the equity securities market or a substantial segment thereof;
h. contributing significantly to extraordinary levels of volatility that have threatened
the maintenance of fair and orderly markets; and reasonably certain to engender such
levels of volatility;
i. effecting transactions in, or to induce or attempt to induce the purchase or sale of, any security-based swap, in connection with which such person engages in any fraudulent, deceptive, or manipulative act or practice, makes any fictitious quotation, or engages in any transaction, practice, or course of business which operates as a fraud or deceit upon any person. 15 U.S.C. § 78i;
j. effecting short sales, and using and employing stop-loss order in connection with the purchase or sale, of any security other than a government security, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, 15 U.S.C. § 78j;
k. employing manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission. 15 U.S.C. § 78j.
The court issued an order appointing the lead plaintiff and lead counsel.
This is a class action on behalf of persons or entities who held common stock in AMC Entertainment Holdings, Inc. (AMC), Bed Bath & Beyond Inc. (BBBY), BlackBerry Ltd. (BB), Express Inc. (EXPR), GameStop Corp. (GME), Koss Corp. (KOSS), Tootsie Roll Industries Inc. (TR), or American Depositary Shares of foreign-issuers Nokia Corp. (NOK) and trivago N.V. (TRVG) as of the close of trading on January 27, 2021, and sold such shares at a loss between January 28, 2021, and February 4, 2021.
A motion to dismiss was filed with the court.
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.