Court Dismisses Claims Robinhood Wrongly Restricted ‘Meme Stock’ Trades

Court Dismisses Claims Robinhood Wrongly Restricted ‘Meme Stock’ Trades
The logo of Robinhood Markets, Inc. is seen at a pop-up event on Wall Street after the company's IPO in New York, on July 29, 2021. (Andrew Kelly/Reuters)

A U.S. federal court on Thursday dismissed a lawsuit accusing Robinhood Markets Inc. of violating state laws by restricting trades on so-called meme stocks during a January 2021 rally, a move that retail traders allege resulted in billions in losses.

Chief Judge Cecilia Altonaga of the federal court in Miami ruled that retail investors cannot pursue negligence and breach of fiduciary duty claims against the commission-free brokerage, citing Robinhood’s customer agreement which allowed it to restrict trading.

Natalia Salas, an attorney for the plaintiffs, said they plan to appeal the decision on behalf of investors who were not bound by the Robinhood customer agreement.

The lawsuit was part of the wave of litigation after the brokerage temporarily barred customers from buying certain hot stocks, including GameStop Corp. and AMC Entertainment Holdings Inc., as their value soared during the social-media fueled rally.

The investors alleged that Robinhood had courted customers with promises of expanding access to the stock market, but was indifferent to known risks tied to increased demand.

The lawsuit sought damages on behalf of Robinhood customers as well as traders who lost money on GameStop, AMC, and 11 other stocks.

In her 66-page opinion, Altonaga wrote that while traders were “gravely disappointed” by the plunge in meme stock prices that occurred after trades were restricted, “the law does not afford relief to every unfulfilled expectation.”

Robinhood is pleased with the decision, spokesperson Jacqueline Ortiz Ramsay said in a statement. “Once more, this confirms that the unfounded allegations against Robinhood have no basis.”

Altonaga previously dismissed a lawsuit alleging that Robinhood and other brokerages colluded with Citadel Securities LLC. to halt a “short squeeze” that was causing billions of dollars of losses for hedge funds that had bet against the stocks retail investors championed. Citadel Securities and Robinhood have denied those allegations.

The judge allowed plaintiffs to file an amended version of that lawsuit. Another meme-stock lawsuit alleging Robinhood violated securities law is pending. Robinhood has sought to dismiss the claims.

By Jody Godoy