The unprecedented events of January 25 changed Wall Street for good, and one company that was caught right in the middle of it is still being haunted by the role it played. Robinhood (NASDAQ: HOOD) was accused of market manipulation as retail investors pumped meme stocks like GameStop. Now, a Miami judge has ruled that these claims are valid, and Robinhood must face the class-action lawsuit against it.
Back in January 2021, retail investors rallied through Reddit to pump GameStop (NASDAQ: GME), AMC, and other meme stocks, which the big money had bet against. This led to a once-in-a-generation event in which these stocks soared, and the short positions were wrecked. Robinhood was the main platform the retail investors used, and at some point on January 25, the platform halted trading, a move that was seen to be in cahoots with the Wall Street giants.
Since then, investors have been pursuing the company in court, and while several actions against it have been dismissed, there’s one that has finally stuck.
As per a Reuters report, U.S. District Court Judge Cecilia Altonaga in Miami ruled that Robinhood must face allegations of market manipulation over restrictions it put in place on trading during the meme stock rally. Judge Altonaga added that investors in GameStop, AMC, and seven other unnamed meme stocks could proceed with their class-action lawsuit in which they allege that Robinhood’s actions artificially depressed the stocks’ prices.
The Miami judge dismissed a motion filed by Robinhood to dismiss the allegations against it.
The zero-commission trading platform liquidated its customers’ shares on the day, closed out options, and even canceled purchase orders. These actions, by themselves, don’t amount to market manipulation, the judge noted.
However, combined with the “opaque and conflicting statements made to hide its lack of capital,” the actions show “an intent on the part of Robinhood to artificially depress share prices for its personal benefit.”
Aside from market manipulation claims, Robinhood must also face allegations that it violated the federal anti-securities fraud statute.
Despite the ruling, the company stands by its actions, Cheryl Crumpton, Robinhood’s associate general counsel of litigation, says.
“The court has not yet made any findings of fact or ruled on the merits — and we will continue to vigorously defend ourselves in this matter,” she stated.
As it grapples with the lawsuits and other regulatory troubles, Robinhood has seen its trading volume plummet and, with it, its revenue. Digital currency trading volume has been the worst hit, dipping by 75% year-on-year for Q2 this year. This forced the company to lay off close to a quarter of its staff this month, the second round of layoffs this year.
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