Robinhood must face a proposed class action lawsuit alleging market manipulation connected to last year’s market frenzy in so-called “meme stocks” and the firm’s decision to restrict trading in them, according to news reports.
U.S. District Court Judge Cecilia Altonaga in Miami ruled that investors in GameStop, AMC Entertainment Holdings and seven other stocks can move forward with the lawsuit accusing Robinhood of artificially depressing share prices by restricting trading in the stocks in January 2021, Reuters writes.
The stocks saw huge gains that month after getting touted on social media, leading Robinhood and several other firms to restrict trading in them and prompting a backlash from investors. Robinhood, suddenly facing a $3 billion cash obligation, suspended trading in certain stocks for a day and temporarily restricted the number of shares users could buy in them, according to the newswire.
Judge Altonaga also denied the firm’s motion to dismiss allegations that it artificially depressed prices in the stocks by canceling purchase orders, closing out options and liquidating investors’ shares, thereby engaging in market manipulation, Reuters writes.
Moreover, Altonaga ruled that Robinhood must face investors’ claims that it violated a federal statute prohibiting securities fraud, according to the newswire.
But the judge dismissed a claim that Robinhood was guilty of market manipulation because it induced customers to sell their share, Reuters writes.
Robinhood's associate general counsel of litigation and regulatory enforcement said in a statement cited by the newswire that the firm stands by its actions.
"The court has not yet made any findings of fact or ruled on the merits — and we will continue to vigorously defend ourselves in this matter," Cheryl Crumpton said in the statement cited by Reuters.
Judge Altonaga oversees a number of lawsuits brought against Robinhood and other firms connected to the meme stock frenzy, Reuters writes.
In November last year, Judge Altonaga dismissed a lawsuit alleging an illegal conspiracy to halt a “short squeeze” in the trading of meme stocks.
In January this year, the judge also dismissed state-law allegations brought by traders who accused Robinhood of negligence, breach of fiduciary duty and civil conspiracy for preventing them from buying meme stocks, ruling that “entertaining the claims” would go against the traders’ agreements with Robinhood as well as tort law principles.
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