A federal judge dismissed the proposed class-action lawsuit accusing retail brokerage biz Robinhood of colluding with trading firm Citadel Securities to prevent people from purchasing GameStop and other so-called meme stocks, earlier this year.
Share prices from the likes of GameStop, AMC Entertainment Holdings, BlackBerry, and Nokia Oyj skyrocketed in January. Internet traders swiping on the Robinhood app inflated prices in an attempt to push back on Wall Street finance houses shorting the securities.
Robinhood users started furiously buying the stocks and as the prices climbed higher and higher, the company suddenly blocked customers from purchasing more shares on its app. Users were only allowed to sell and as a result, GameStop and other companies' market value began to plummet.
Investors sued the Silicon Valley amateur trading app and Citadel Securities and blamed them for their losses. Robinhood makes money off by selling financial data to market makers like Citadel, who get to see what stocks people are buying and selling in real-time. The lawsuit [PDF] accused the pair of colluding to restrict trading activity, in an attempt to regain control of the market.
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But Judge Cecilia Antonaga of the Southern District of Florida threw the case out this week, citing a lack of credible evidence. “Plaintiffs allege that the Brokerage Defendants and Clearing Defendants restricted output to lower prices for securities they are not alleged to have bought or sold for their own accounts, all to benefit the Market Maker Defendant who actually engages in such transactions,” according to the ruling [PDF].
“Plaintiffs do not address this distinction at all and do not provide any legal authority supporting the application of this plus factor to their novel anticompetitive theory. In short, Plaintiffs fail to coherently define a market and persuade the Court that this plus factor weighs in their favor.”
Other trading firms such as Alpaca Securities, TD Ameritrade, Schwab, and Merrill Lynch also imposed trading restrictions, making it difficult for plaintiffs to prove that it was solely Robinhood's cosy working relationship with Citadel Securities that crashed the market.
“We are pleased that the court agreed that there is no basis for the plaintiffs’ conspiracy theories and summarily dismissed the case,” a spokesperson from the trading firm told The Register.
We’ve asked Robinhood for comment. ®