Robinhood must face U.S. market manipulation claims over ‘meme stock’ rally, judge rules

Robinhood Markets, Inc. The logo of is seen at a pop-up event on Wall Street following the company’s IPO on July 29, 2021 in New York City. REUTERS/Andrew Kelly

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Aug 11 (Reuters) – Stock trading platform Robinhood Markets Inc (HOOD.O) A U.S. judge ruled on Thursday that it will face market manipulation claims over restrictions on trading during last year’s “meme stock” rally.

U.S. District Court Judge Cecilia Altonaga in Miami said in the ruling that investors in GameStop Corp. (GME.N)AMC Entertainment Holdings Inc (AMC.N) And seven other stocks may move forward with a proposed class action lawsuit alleging the restrictions artificially depressed share prices.

The lawsuit was among several brought against the retail trading platform after it temporarily barred customers from buying some hot stocks in January 2021, including GameStop and AMC.

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A social media-fueled rally sent shares of those companies soaring to record highs that eventually prevented trading in Robinhood and others affected securities, angering retail investors and denting market confidence. The volatility led to huge losses for hedge funds that had bet on meme stocks.

Robinhood removed its users’ ability to buy certain stocks for a day when its clearinghouse’s needs reached $3 billion in cash, a restriction set by the National Securities Clearing Corporation. The brokerage temporarily limited the number of shares users could buy in some hot stocks.

Judge Altonaga oversaw several lawsuits alleging that Robinhood and others violated US laws in response to the social media-driven rally.

She dismissed earlier claims that the company and other brokerages illegally conspired to stop a “short squeeze” that was costing hedge funds billions of dollars in losses that were betting on falling stock prices. The judge also dismissed claims by retail investors that Robinhood was negligent and breached its duty to consumers.

In a decision published Thursday, the judge denied Robinhood’s motion to dismiss separate allegations that it engaged in market manipulation to artificially lower the price of nine stocks by canceling purchase orders, removing customer shares and closing options.

While restrictions alone do not support a market manipulation claim, the “opaque and contradictory statements made to conceal a lack of capital” along with “Robinhood’s intent to artificially depress stock prices for their personal gain,” the judge wrote.

The company also faces claims from traders that the alleged manipulation violated federal laws prohibiting securities fraud, the ruling said.

However, the judge rejected the claim that the brokerage was manipulating the market to induce investors to sell their shares.

In a statement, Robinhood’s associate general counsel for litigation and regulatory enforcement, Cheryl Crumpton, said the company stands by its actions, which it believes are “appropriate and necessary to support our customers.”

“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 case,” Crumpton said.

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Jodi Godoy in New York and Hannah Lang in Washington reported; Editing by Jonathan Otis, Leslie Adler and Aurora Ellis

Our Standards: Principles of Thomson Reuters Trust.

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