A US District Court for the Southern District of Florida has recently rejected the class certification requests made by investors who took legal action against the popular trading platform, Robinhood. Chief Judge Cecilia Altonaga, in a court document on November 13th, stated that the motion put forth by the prosecutors could not be admitted after thoroughly examining the presented documents and relevant laws.
Judge Altonaga explained that the refusal was based on the investors’ inability to demonstrate to the court that concerns related to relying on individualized approaches to allegations of market manipulation against the stock-trading platform wouldn’t be widespread or common. The use of individualized approaches often leads to hindrances in legal proceedings, thereby preventing a proper legal procedure. Hence, such issues are usually struck out from the onset to avoid lengthy court procedures in the future.
“The case meets the merits of coming under a class treatment. However, it could not properly convince the court that individualized approaches would not be common,” said Judge Altonaga.
The case originated in 2021 following the infamous short squeeze event that shook Wall Street. A community of Redditors joined forces and invested in struggling companies such as GameStop, AMC Entertainment, Nokia, Blackberry, among others. This led to the meme stock frenzy during that time. Hedge funds had shorted the stocks of these businesses, as they were expected to underperform financially. However, with the significant purchases by retail investors influenced by the WallStreetBets subreddit community, the prices of these stocks skyrocketed.
For instance, GameStop’s stock price surged from $53 on January 22, 2021, to $503 per share just six days later. Consequently, several hedge funds had to buy these underperforming stocks to cover their positions. In the midst of this event, Robinhood, the stock trading platform, found itself caught in the crossfire. Many retail trades driven by social media were carried out on the platform.
To prevent potential market turmoil resulting from a lack of liquidity, regulators significantly increased the deposit requirements for clearing brokers. Robinhood, a commission-free stock trading app that deals in bonds, ETFs, options, and cryptocurrencies, had to enforce limitations and restrictions on trades executed on its platform, particularly on the meme stocks mentioned earlier, to satisfy regulatory requirements.
In response, a group of investors accused Robinhood of market manipulation, filing their claims under federal securities laws. The plaintiffs also alleged that the user-friendly platform released “half-truths” by failing to disclose issues with its liquidity. The defendants in this case are Robinhood Markets, Robinhood Financial, and Robinhood Securities.
Robinhood Expanding Crypto Brokerage Services
Although Robinhood initially aimed to democratize investment trading in traditional financial instruments, such as stocks, it has recently been making progress in the cryptocurrency landscape. According to recent reports, Robinhood is planning to expand its crypto brokerage services into the UK and the European Union (EU).
This announcement was made in the company’s third-quarter earnings report. By expanding into Europe, Robinhood will be competing with local platforms like Coinbase, which have been gaining traction in the European market over the past few months.
