Amended Complaints Take on Robinhood and Others in Short Squeeze Multi-District Litigation

On Tuesday, retail investors filed two consolidated class action complaints against Robinhood, its affiliates, and a host of financial firms following the January 28 shut down of Robinhood’s stock platform amidst a short squeeze. 

The Southern District of Florida multidistrict litigation is a collection of several dozen cases, like one filed just after the well-publicized outage. User lockouts last year caused the Financial Industry Regulatory Authority to levy its highest fine ever against the popular trading platform.

One of the cases, proceeding before Southern District of Florida Chief Judge Cecilia M. Altonaga has several “tranches.” One is based on Robinhood and other financial food chain players’ purportedly tortious acts like negligence and gross negligence.

That filing claimed Robinhood is unfit to serve its users base and accused the company of recruiting retail investors to the platform for the purpose of trading so-called hot stocks like  GameStop, AMC Entertainment Holdings, and others “through marketing and addictive user interfaces.” Those plaintiffs asserted that the platform was not adequately capitalized and failed to meet the well-established margin requirements that serve as a safeguard in the event of frenzied market activity.

The other complaint filed earlier this week in the same court asserted antitrust violations against market players involved in a scheme to restrict retail investors’ market access. The plaintiffs claimed that the brokerage defendants, including SoFi, E*Trade, and Robinhood, conspired with Robinhood client Citadel Securities and the clearing defendants to prevent the individual investors from controlling their investments and benefiting from stock price appreciation.

By doing so, the defendants allegedly forced retail investors to choose between selling hot stocks at a lower price or holding their “rapidly declining positions.” According to the filing, the defendants did so to protect one another and to mitigate the massive losses incurred by certain defendants as a consequence of their accumulation of large short positions. 

The plaintiffs seek to certify nationwide classes of people and entities harmed by the January 28 outage and accompanying behavior. Both seek damages, while the antitrust complaint seeks treble damages, for the purportedly unlawful conduct.

The Joseph Saveri Law Firm LLP and Hach Rose Schirripa & Cheverie LLP are co-lead counsel for the antitrust tranche, The Ferraro Law Firm P.A. is lead counsel for the Robinhood tranche, and Safirstein Metcalf LLP is lead counsel for the other broker tranche.