Robinhood seeks to toss fraud lawsuit over meme stock trading restrictions

Robinhood Markets, Inc.’s logo appears. At a pop-up event on Wall Street after the company’s initial public offering in New York City, US, July 29, 2021. REUTERS/Andrew Kelly

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(Reuters) – Robinhood Markets Inc has asked a Miami federal judge to dismiss a lawsuit alleging fraud and market manipulation by its retail brokerage when it restricted trading in several “Mim stocks” last year.

In the proposal submitted Friday, Robinhood argued that the temporary restrictions enacted amid a social media-fueled rally in January 2021 were publicly announced and therefore not deceptive.

A lawyer for the investors did not immediately respond to a request for comment.

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The proposed class action seeks to compensate for the losses of traders who sold shares in nine different companies, including GameStop Corp and AMC Entertainment Holdings Inc, while Robinhood’s restrictions were in effect between January 28 and February 4, 2021.

Robinhood removed the ability of its users to buy certain stocks for a day when its deposit requirements swelled to $3 billion amid increased demand. The brokerage has also temporarily limited the number of shares that users can buy in some of the hot stocks.

In its motion to dismiss the complaint, Robinhood said investors had no reasonable claim that the brokerage would benefit from lower stock prices due to the restrictions.

Judge Cecilia Altonaga in November dismissed a related lawsuit accusing Robinhood and others of illegally conspiring to stop a “short squeeze” that caused billions of dollars in losses to hedge funds that had been betting on falling stock prices.

The case is in January 2021 Short Squeeze Trading Litigation, US District Court, Southern District of Florida, No. 21-md-02989.

Investors: Laurence Rosen of The Rosen Law Firm

For Robinhood: Samuel Danon of Hinton Andrews Court; Kevin Orsini from Cravath and Swaine & Moore

Read more: Robinhood, others win ‘short squeeze’ lawsuit for meme stock

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Judy Godoy

Judy Godoy Report on Banking and Securities Law. You can reach her at [email protected]

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