Robinhood Investors Face Setback: Class Certification Denied

Since the United States District Court for the Southern District of Florida denied the plaintiffs’ request for class certification on November 13, 2023, investors pursuing legal action against Robinhood regarding trading restrictions imposed in early 2021 have encountered an additional setback.

Following a thorough review of the record, written arguments, and pertinent legal principles, Chief Judge Cecilia Altonaga denied the plaintiffs’ motion.

The court rejected the motion because the plaintiffs failed to convince the panel that concerns regarding individualized reliance would not be widespread.

Trading cryptocurrencies, equities, exchange-traded funds, options, and ETFs without incurring commissions is possible on the Robinhood platform.

Consumers can trade these financial instruments fee-free through its app or website. By certifying a class, the plaintiffs sought to hold Robinhood Markets, Robinhood Financial, and Robinhood Securities liable for market manipulation in violation of federal securities laws.

The legal dispute revolves around allegations that Robinhood engaged in market manipulation as a result of trading restrictions imposed in early 2021 concerning the “meme stock” short squeeze.

As a precaution against the dangers associated with unexecuted transactions, regulators increased the minimum deposit amounts for clearing brokers, including Robinhood, in response to increased market volatility in January 2021.

To satisfy regulators, Robinhood sought an alternative solution after being unable to meet the increased deposit requirements.

In return for instituting limitations on its customers’ capacity to trade particular stocks, regulators authorized Robinhood to waive the deposit requirements.

The platform categorically denied any liquidity issues, attributing its limitations to market volatility. Plaintiffs allege that the platform engaged in market manipulation through the imposition of restrictions, the dissemination of “half-truths” regarding volatility, and the omission of liquidity challenges.

Due to deficiencies in the class representatives and the fact that individualized issues of reliance and damages will overshadow common concerns, Robinhood urged the court to reject class certification.

It is appropriate to certify the class, according to the plaintiffs, who maintain that their representatives are adequate.

The court acknowledged the majority of the plaintiffs’ arguments in favor of the suitability of the case and their representatives for class treatment.

Despite this, they were unable to convince the court that concerns regarding individual reliance would not be widespread.