Chief Judge Cecilia M. Altonaga ruled in favor of financial firm defendants, including Robinhood, E*TRADE, and Citadel Securities, in a putative class action alleging Sherman Act violations. The 51-page opinion concluded that the plaintiffs failed to plead an antitrust conspiracy. Though they put forward evidence of conscious parallelism, they failed to allege “plus factors” that edged their complaint from circumspect to plausible, the court specified.
The lawsuit, a sprawling MDL pending in Miami, Florida, was filed after the so-called clearing, brokerage, and market maker defendants responded to the January 2021 “short squeeze,” when certain stocks rose sharply in value, distressing short positions. According to the retail investor plaintiffs, the defendants conspired to prevent losses to their short positions by artificially constricting the price of certain stocks.
The court first ruled that the plaintiffs failed to put forth direct evidence of the defendants’ alleged unlawful agreement. Next, it considered the salience of the retail investors’ indirect evidence, like emails between high level Citadel Securities and Robinhood executives that reportedly showed concerted effort leading up to the Jan. 28 trading restrictions.
Regarding one proffered email that the defendants contended was merely a routine daily trading account reconciliation, the court agreed, holding, “[t]o conclude this email evidences an unlawful agreement to restrain trade requires an exercise in incredible leaping logic in which the Court declines to engage.”
Judge Altonaga also ruled that the plaintiffs established conscious parallelism, pointing to a key allegation that on January 28, the brokerage and clearing defendants each restricted trading in one or more of the relevant securities, resulting in price decreases. The court then contemplated whether the plaintiffs’ plus factors made the “‘parallel conduct more probative of conspiracy than of conscious parallelism.’”
Judge Altonaga weighed evidence and arguments concerning actions against unilateral self-interest, opportunity to coordinate and collude, interfirm communications, indications of concealment and pretext, government investigations, and structural characteristics of the market that make it prone to antitrust collusion. Ultimately, the court disposed of all the factual allegations, concluding that none support a plausible inference of a conspiracy.
As such the court declined to reach the defendants’ second and third suggested grounds for dismissal, that the plaintiffs fail to plead the remaining elements of a Sherman Act Section 1 claim, and that the antitrust theory is precluded by federal securities laws.
The retail investors have until December 20 to file an amended complaint.
Robinhood is represented by Hunton Andrews Kurth LLP and Cravath, Swaine & Moore LLP, Citadel Securities LLC by Quinn Emanuel Urquhart & Sullivan LLP and Bartlit Beck LLP, and Interactive Brokers LLC by Dechert LLP.
E*TRADE is represented by Homer Bonner Jacobs Ortiz P.A. and Davis Polk & Wardwell LLP, and Apex Clearing Corporation, Electronic Transaction Clearing, Inc. and PEAK6 Investments LLC are represented by White & Case LLP.