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Robinhood seeks to toss fraud lawsuit over meme stock trading restrictions

Robinhood seeks to toss fraud lawsuit over meme stock trading restrictions
Robinhood seeks to toss fraud lawsuit over meme stock trading restrictions   -   Copyright  Thomson Reuters 2022
By Reuters

By Jody Godoy

– Robinhood Markets Inc has asked a federal judge in Miami to dismiss a lawsuit alleging the retail brokerage engaged in fraud and market manipulation when it restricted trading in several “meme stocks” last year.

Robinhood argued in the motion filed on Friday that the temporary limits enacted amid a social media-fueled rally in January 2021 were publicly announced and therefore not deceptive.

An attorney for the investors did not immediately reply to a request for comment.

The proposed class action seeks to recoup losses for traders who sold shares in nine different companies, including GameStop Corp and AMC Entertainment Holdings Inc, while Robinhood’s restrictions were in place between Jan. 28 and Feb. 4, 2021.

Robinhood had removed its users’ ability to buy certain stocks for a day when its deposit requirement ballooned to $3 billion amid increased demand. The brokerage also temporarily limited the number of shares users could buy in some hot stocks.

In its motion to dismiss the complaint, Robinhood said the investors do not have a plausible allegation that the brokerage stood to profit from lower share prices caused by the restrictions.

Chief Judge Cecilia Altonaga in November dismissed a related lawsuit accusing Robinhood and others of illegally conspiring to halt a “short squeeze” that was causing billions of dollars of losses for hedge funds that were betting on falling stock prices.

The case is In re January 2021 Short Squeeze Trading Litigation, U.S. District Court, Southern District of Florida, No. 21-md-02989.

For the investors: Laurence Rosen of The Rosen Law Firm

For Robinhood: Samuel Danon of Hunton Andrews Kurth; and Kevin Orsini of Cravath, Swaine & Moore