Robinhood Replies to Charges of Price Manipulations in a Short Squeeze Lawsuit

Robinhood had replied to a further class case lawsuit filed against it, which was filed around a month ago, in relation to its activities amid the January market correction. It’s on account of anybody who owned common stock in AMC Entertainment Holdings, Inc., American Depositary Shares of foreign-issuers Nokia Corp., Express Inc., GameStop Corp., Koss Corp., Bed Bath & Beyond Inc., Tootsie Roll Industries Inc., or BlackBerry Ltd., and trivago N.V. as of the completion of trade on January 27, 2021, and traded those securities incurring a deficit during January 28th and February 4th of 2021.

Accusations Levied on Robinhood

The plaintiffs accused Robinhood of violating Section 9(a) of the Exchange Act, as well as Section 10(b) and Rule 10b-5 of the Exchange Act. Robinhood Markets, Inc., Robinhood Financial LLC, and Robinhood Securities, LLC (collectively, “Robinhood”) filed a reply to the lawsuit with the Florida Southern District Court on January 7, 2022. The broker is requesting that the case be dismissed for lack of jurisdiction.

The occurrences of January 2021, as per Robinhood, boosted trade instability for a variety of “meme” stocks. And over the course of days, trade activity soared as individual investors attempted to create a short squeeze in equities that hedge funds were rumored to be shorting. Due to that, on January 27th and 28th, 2021, trade volumes and unpredictability in various shares hit record highs.  When covering the trading requests and danger, NSCC imposed high collateral demands on its customers early in the morning on January 28th, 2021.

On the 13th of the most unpredictable equities, Robinhood Securities instituted PCO restrictions. Acquisition of the equities in question were temporarily prohibited by the PCO. It did not impose any restrictions on the sale of those stocks. Within a day, Robinhood eliminated the PCO ban on those thirteen shares.

During the coming 5 trading days, Robinhood Securities imposed buying restrictions on some volatile equities, limiting the quantity of stocks a consumer can hodl on the marketplace. Robinhood Securities officially eliminated all buy limitations by February 5th, 2021.

Furthermore, based on Robinhood, the traders have failed to disclose statistics that support a compelling conclusion of Scienter, as required by Section 9(a) or Section 10 of the Securities Exchange Act of 1934. (b). The plaintiffs, according to Robinhood, are unable to provide any definitive proof of Scienter or explain a credible cause for Robinhood manipulating the market to drop the Affected stock’ values.

Reasons for Robinhood’s Claimed Price Manipulation of the Affected Stocks

The plaintiffs propose two possible reasons for Robinhood’s claimed price manipulation of the Affected Stocks. Their initial argument is that Robinhood lowered the Affected Stocks’ pricing to satisfy its purchase price in order to protect a potential future IPO.  The performance of Robinhood’s IPO, which wouldn’t take place for an extra 6 month, didn’t involve the levels the Affected Stocks were traded, according to Robinhood.

Plaintiffs’ next claim is that Robinhood drove lower the Affected Stocks valuation to assist Citadel Securities in settling theoretical proprietary trades.  theinThis notion, according to Robinhood, is missing a key condition for a manipulating assertion: that Robinhood operated with the objective of driving the Affected Stocks’ values down and profiting from the controlled asset values.

The plaintiffs also claim that allegedly unlawful false statements violate Section 10(b) and Rule 10b-5. Plaintiffs claim that Robinhood provided deceptive claims regarding its own company, deceiving shareholders into buying or selling shares offered by other businesses. Neither of the Plaintiffs claims to have been Robinhood shareholders.

Section 10(b) would not provide for such a broad right of action in the case of false statements. A court had never allowed a Section 10(b) complaint for losses in shares sold by Company B depending on Company A’s purportedly fraudulent claims about Company A’s operations, according to Robinhood.

Plaintiffs’ failure to confess an amount of other essential components of Section 10(b) blatant mischaracterization assertion, including: (1) evidence adequate to demonstrate that some of those of Robinhood’s declarations were untruthful; (2) loss causal link, as Plaintiffs don’t really insinuate that revelation of the alleged falsehood of Robinhood’s declarations impacted the cost of any of the Affected Stocks; and (3) factual information adequate to define scienter.

As a result, Robinhood contends that the Complaint be dropped. It’s worth noting that Robinhood is included in multiple other petition securitizations, such as the antitrust one. The case is part of a multi-district dispute that includes over Fifty cases involving brokers, clearing institutions, and hedge funds.

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