Investors who are suing Robinhood had a demand for class action certification denied by the court.
Investors suing Robinhood over trading limits implemented in early 2021 have suffered another setback when a request for class certification by the plaintiffs was denied by the United States District Court for the Southern District of Florida on November 13, 2023.
After reviewing the parties’ written submissions, the facts, and the applicable law, Chief Judge Cecilia Altonaga ruled that the plaintiffs’ request was denied because they failed to show that questions of individualized reliance would not be common.
Robinhood is an online brokerage that eliminates transaction fees for buying and selling stocks, ETFs, options, and digital currencies. The software and website allow users to trade in various monetary instruments without the usual costs.
The plaintiffs sought to get Robinhood Markets, Robinhood Financial, and Robinhood Securities certified as a class action in order to pursue accusations of market manipulation under federal securities laws.
The case is mostly about Robinhood being accused of manipulating the market because it limited trading in early 2021 during the “meme stock” short squeeze. Due to the increased risk of unexecuted transactions caused by the increased volatility of the market in January 2021, authorities increased the deposit requirements for clearing brokers, including Robinhood.
Since Robinhood did not have enough money on hand to fulfill the new deposit requirements, the company looked for another way to appease authorities. Authorities agreed to relax Robinhood’s deposit requirements provided the brokerage limited its users’ access to trading in certain equities.
The platform has denied any liquidity problems and has instead blamed them on the current state of the market. To avoid acknowledging liquidity issues, the plaintiffs say the platform manipulated the market by imposing limits and “half-truths” concerning volatility.
Robinhood argued that the court should deny class certification because of problems with the proposed class representatives and because of the importance of specific questions of reliance and damages. The plaintiffs argued that the case meets the requirements for class certification and that their representatives adequately represent the class.
The court agreed with the plaintiffs that their case and their representatives are representative enough to warrant class treatment. They failed to convince the judge that individual cases of reliance would be uncommon.
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