Case 4:20-cv-09328-YGR Document 110 Filed 10/13/22 Page 1 of 24
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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`IN RE ROBINHOOD ORDER FLOW
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`LITIGATION
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`Case No. 4:20-cv-9328-YGR
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`ORDER GRANTING IN PART AND DENYING
`IN PART MOTION TO DISMISS SECOND
`CONSOLIDATED AMENDED COMPLAINT;
`GRANTING IN PART AND DENYING IN PART
`MOTION TO DENY CLASS CERTIFICATION
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`Dkt. Nos. 99 and 101
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`Plaintiff Ji Kwon brings this class action complaint against defendants Robinhood
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`Financial LLC (“Robinhood Financial”), Robinhood Securities, LLC (“Robinhood Securities”),
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`and Robinhood Markets, Inc. (“Robinhood Markets”) (collectively “Robinhood”) on behalf of
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`himself and a class of similarly situated individuals, alleging six false and misleading statements
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`and omissions and fraudulent and manipulative conduct between September 1, 2016 and June 16,
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`2020 (the “Class Period”) (Dkt. No. 93) (“Consolidated Second Amended Class Action
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`Complaint” or “Compl.”). Plaintiff asserts three causes of action, each alleging a violation of
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`Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a), 10b-5(b), and 10b-5(c)
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`respectively.
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`Having once considered a motion to dismiss, now before the Court is Robinhood’s second
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`motion to dismiss plaintiff’s claims pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b)
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`and motion to deny class certification (see Dkt Nos. 99 and 101). After carefully considering the
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`papers submitted and the pleadings in this action, and for the reasons set forth below, the Court
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`hereby GRANTS IN PART both the motion to dismiss, and relatedly, the motion to deny class
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`certification.
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`Case 4:20-cv-09328-YGR Document 110 Filed 10/13/22 Page 2 of 24
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`I. BACKGROUND
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`The below factual background is based on facts from judicially noticeable documents and
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`allegations from plaintiff’s complaint.1
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`A. Robinhood’s Payment For Order Flow (“PFOF”) Business
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`Robinhood is a “multi-billion dollar mobile application and website investment service.”
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`(Compl. ¶ 2.) Users can engage in “self-directed securities brokerage services” by way of
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`Robinhood’s website and smartphone applications. (Id. ¶ 21.) Robinhood has gained popularity
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`amongst investors by allowing customers to place stock trades “without paying a trading
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`commission fee.” (Id. ¶ 22.)
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`Since at least late 2016, PFOF has been Robinhood’s largest revenue source. (Id. ¶ 7.)
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`1 Robinhood presents twenty documents in support of its motion to dismiss. For each,
`Robinhood requests that the Court take judicial notice, or incorporate the document by reference,
`namely: (1) a copy of Robinhood Financials’ SEC Rule 606 disclosure for the first quarter of 2018
`(Ex. A); (2) a copy of Robinhood Financials’ customer agreement, dated November 21, 2016 (Ex.
`B); (3) excerpts from trade confirmations (Exs. C and D); (4) media publications concerning
`Robinhood’s receipt of payment for order flow (Exs. E -T). (See Dkt. No. 99). Plaintiff challenges
`each request.
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`The Court concludes that it may properly take judicial notice of Exhibit A since SEC
`filings are routinely subject to judicial notice. See Metzler Inv. GMBH v. Corinthian Colleges,
`Inc., 540 F.3d 1049, 1064 n.7 (9th Cir. 2008) (explaining that it was proper for the district court to
`take notice of defendant’s SEC filings); see also Dreiling v. Am. Exp. Co., 458 F.3d 942, 946 n. 2
`(9th Cir. 2006) (SEC filings subject to judicial notice).
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`Similarly, the Court takes judicial notice of Exhibits E through T, not for the truth of their
`content, but to “indicate what was in the public realm at the time.” Von Saher v. Norton Simon
`Museum of Art at Pasadena, 592 F.3d 954, 960 (9th Cir. 2010); Gerritsen v. Warner Bros. Entm’t
`Inc., 112 F. Supp. 3d 1011, 1028 (C.D. Cal. 2015) (“The cases in which courts take judicial notice
`of newspaper articles and press releases . . . are limited to a narrow set of circumstances . . . e.g., in
`securities cases for the purpose of showing that particular information was available to the stock
`market.”); see also, e.g., Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n.18 (9th Cir.
`1999) (taking judicial notice “that the market was aware of the information contained in news
`articles submitted by the defendants”).
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`However, because plaintiff disputes the contents of Exhibits B through D and the
`complaint does not refer to or explicitly rely upon those documents, the request for judicial notice
`as to these documents is denied. Similarly, the incorporation by reference doctrine does not apply
`to these documents. Nor does it apply to Exhibit A, but that document is judicially noticeable on
`the basis described above.
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`Case 4:20-cv-09328-YGR Document 110 Filed 10/13/22 Page 3 of 24
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`PFOF is the payment or compensation that a brokerage or retail firm receives from principal
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`trading firms directing orders to different market makers. (Id. ¶ 26.) Rule 10b-10(d)(8) of the
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`Exchange Act defines PFOF to include “any monetary payment, service, property, or other benefit
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`that results in remuneration, compensation, or consideration to a broker-dealer in return for the
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`routing of customer orders.” (Id. ¶ 27.) The Securities and Exchange Commission (“SEC”)
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`permits the receipt of PFOF so long as it does not interfere with the brokerage or firm’s other
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`duties, and as long as such payments are disclosed in the firm’s quarterly SEC Rule 606 report.
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`(Id. ¶ 29.)
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`In addition to PFOF, another incentive that principal trading firms may provide to retail
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`broker-dealers is “price improvement” on customers’ orders. (Id. ¶ 30.) Price improvement
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`allows customers to receive executed orders at prices better than the national best bid and offer
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`(“NBBO”). (Id. ¶ 31.)
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`B. The Duty of Best Execution
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`Retail brokers such as Robinhood owe their customers a duty of “best execution.” (Id. ¶
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`34.) Best execution requires that a broker endeavor to execute orders at the most favorable terms
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`available at the time of execution. (Id.) A broker is not required to examine every single order to
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`determine compliance with its duty of best execution. (Id. ¶ 35.) Instead, the duty only requires
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`regular and rigorous reviews of its quality of orders executions. (Id.) PFOF has the potential to
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`interfere with a broker firm’s way of carrying out its duty of best execution because PFOF is a
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`benefit that goes straight to the broker whereas other incentives that may be obtained for routing
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`PFOF, such as price improvement, benefit the customer. (Id. ¶ 36.) In conducting its business,
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`Robinhood agreed to accept less price improvement for its customers than what principal trading
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`firms were offering in exchange for receiving a higher rate of payment for PFOF. (Id. ¶ 63.)
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`In 2016, Robinhood formed a “Best Execution Committee” to monitor its execution speed
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`and price. (Id. ¶ 64.) The committee met at least once per month. (Id.) In 2017, Robinhood
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`developed a proprietary routing algorithm, known as a smart order router, which routed customer
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`orders to principal trader firms with which Robinhood had payment for order flow arrangements
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`compete for order flow by routing customer orders to the principal trading firm that had provided
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`Case 4:20-cv-09328-YGR Document 110 Filed 10/13/22 Page 4 of 24
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`the most price improvement for that stock over the prior 30 days. (Id. ¶ 66.) The smart router did
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`not fix Robinhood’s PFOF and did not route to firms with whom Robinhood did not have an
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`agreement. (Id.) Thus, allegedly the committee did not take any steps to determine whether
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`Robinhood’s PFOF was negatively impacting customers’ orders, nor did the committee conduct
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`regular reviews to determine whether Robinhood was fulfilling its best execution obligations. (Id.
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`¶¶ 69-70.) Robinhood chose to stop routing orders to one of its principal trading firms mid-2017
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`when the firm tried to negotiate a lower PFOF rate. (Id. ¶ 71.)
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`In October 2018, Robinhood started comparing its order execution quality to that of its
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`competitors and found that its quality metric was worse than that of its competitors. (Id. ¶ 70.) In
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`March 2019, after further testing, Robinhood further learned that its execution quality and price
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`improvement metrics were substantially worse than other retail brokers. (Id. ¶ 73.) However, the
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`Best Execution Committee failed to take the necessary steps to ensure that Robinhood was
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`complying with its duty to seek the best execution of trades. (Id. ¶ 74.)
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`C. Pre-Class Period Allegations: Robinhood’s Initial FAQ Concerning PFOF
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`In 2014, prior to its public launch, Robinhood included a Frequently Asked Question
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`(“FAQ”) page on its website providing information about the company’s anticipated revenue
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`source. (Id. ¶ 47.) In response to the question, “How does Robinhood make money?”, Robinhood
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`indicated that it anticipated receiving money for PFOF. (Id.) During this time, PFOF became
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`publicly scrutinized and was deemed controversial. (Id. ¶¶ 49-50.) In light of these concerns, in
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`December 2014, Robinhood revised its FAQ to reflect that “the payment for order flow revenue
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`Robinhood received at the time was ‘indirect’ and ‘negligible’” and that “if payment for order
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`flow ever became a direct or significant source of Revenue, Robinhood would inform customers
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`of those facts on the “How does Robinhood make money” FAQ page.” (Id. ¶¶ 51-52.)
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`Robinhood’s FAQ reflected this language from December 2014 until some time in 2016. (Id. ¶¶
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`51, 53, 75.) During this time, PFOF constituted more than 80% of the company’s revenue. (Id. ¶
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`53.)
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`D. Events During the Class Period
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`By late 2016, Robinhood removed references to PFOF altogether from its FAQ response.
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`Case 4:20-cv-09328-YGR Document 110 Filed 10/13/22 Page 5 of 24
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`(Id. ¶ 75.) Between then and September 2018, the FAQ part of Robinhood’s website did not
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`include PFOF as a revenue source in its answer to the “How Robinhood Makes Money” FAQ
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`although PFOF was its largest source of revenue throughout this period. (Id.) However, the FAQ
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`website was updated throughout this period to include smaller revenue sources. (Id. ¶ 78.)
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`Robinhood featured its “How Robinhood Makes Money” FAQ in some of its customer
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`communications, including its website’s homepage. (Id. ¶ 80.) Additionally, Robinhood
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`instructed its customer service representations to direct customers to the FAQ page or use the
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`language from its response when customers inquired about how Robinhood made money. (Id. ¶
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`81.) Training documents for customer representatives “explicitly instructed them to ‘avoid’
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`talking about payment for order flow and stated that it was ‘incorrect’ to identify payment for
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`order flow in response to questions about how Robinhood made money.” (Id. ¶ 82.)
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`Robinhood disclosed its receipt of PFOF in its SEC 606 reports, which were published on
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`Robinhood’s “Disclosure Library” page of its website. (Id. ¶ 84.) Robinhood’s customer
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`agreements and trade confirmations also included language indicating that Robinhood “may”
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`receive PFOF even though it was “four times the industry standard.” (Id. ¶¶ 84, 85.)
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`On October 12, 2018, Robinhood published a new FAQ page that discussed its receipt of
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`PFOF. (Id. ¶ 87.) The new FAQ page also include a statement on Robinhood’s execution quality
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`which stated:
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`What is the execution quality for orders on Robinhood?
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`Reg NMS ensures your order gets executed at the national best bid and offer, or
`better, at the time of execution. Our execution quality and speed matches or beat
`what’s found at other major brokerages. Even when measured at the time of
`routing, our customers’ orders get executed at the NBBO or better. By way of
`example, in August 2018, 99.12% of our customers’ marketable orders were
`executed at the the [sic] national best bid and offer or better with an execution
`speed of 0.08 seconds from routing to execution (for S&P 500 stocks, during
`market hours).
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`(Id.)
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`By contrast, Robinhood’s internal analysis conducted after October 2018 showed that
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`Robinhood underperformed other retail brokers with respect to the number of accounts receiving
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`price improvement. (Id. ¶¶ 88-92.) In June 2019, Robinhood removed the language from its FAQ
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`Case 4:20-cv-09328-YGR Document 110 Filed 10/13/22 Page 6 of 24
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`indicating that its execution quality matched or beat that of other brokers. (Id. ¶ 94.)
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`II. LEGAL STANDARDS
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`A. Motion to Dismiss
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`The standards under Federal Rule of Civil Procedure 12(b)(6) are well-known and not in
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`dispute.
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`Rule 9(b) requires a party bringing a fraud claim to “state with particularity the
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`circumstances constituting [such] fraud . . . .” Fed. R. Civ. P. 9(b). This “requires . . . an account
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`of the time, place, and specific content of the false representations as well as the identities of the
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`parties to the misrepresentations.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007)
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`(citing Rule 9(b)) (internal quotation marks omitted). Similarly, in pleading a cause of action for
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`securities fraud under the Private Securities Litigation Reform Act (“PSLRA”), “the complaint
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`shall specify each statement alleged to have been misleading, the reason or reasons why the
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`statement is misleading, and, if an allegation regarding the statement or omission is made on
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`information and belief, the complaint shall state with particularity all facts on which that belief is
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`formed.” 15 U.S.C. § 78u-4(b). The PSLRA also requires particularity in pleading the required
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`state of mind: “in any private action arising under this chapter in which the plaintiff may recover
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`money damages only on proof that the defendant acted with a particular state of mind, the
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`complaint shall, with respect to each act or omission alleged to violate this chapter, state with
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`particularity facts giving rise to a strong inference that the defendant acted with the required state
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`of mind.” Id. Thus, the PSLRA requires a plaintiff alleging securities fraud to “plead with
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`particularity both falsity and scienter.” Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981,
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`990 (9th Cir. 2009) (internal quotation and citation omitted); see also Tellabs, Inc. v. Makor Issues
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`& Rts., Ltd., 551 U.S. 308, 313 (2007); 15 U.S.C. § 78u-4(b)(1)–(2). The Ninth Circuit has
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`dubbed the pleading requirements under the PSLRA “formidable” for a plaintiff seeking to state a
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`proper claim and avoid dismissal. Metzler Inv. GMBH, 540 F.3d at 1055.
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`B. Motion to Deny Class Certification
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`“Before certifying a class, the trial court must conduct a rigorous analysis to determine
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`whether the party seeking certification has met the prerequisites of Rule 23.” Mazza v. Am. Honda
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`Motor Co., Inc., 666 F.3d 581, 588 (9th Cir. 2012). Under the Federal Rules of Civil Procedure, a
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`court may certify if the class meets the numerosity, commonality, typicality, and adequacy
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`prerequisites of Rule 23(a). In addition to meeting these four requirements of Rule 23(a), class
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`actions must fall within one of the three types specified in Rule 23(b).
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`Courts are required to determine whether to certify the action as a class action at “an early
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`practicable time.” Fed. R. Civ. P. 23(c)(1). Rule 23 “does not preclude a defendant from bringing
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`a ‘preemptive’ motion to deny certification” where the class action plaintiff has yet to seek
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`certification. Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935, 941 (9th Cir 2009). While
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`such a motion is disfavored and may be denied as premature, district courts have “broad
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`discretion” to control the class certification process and to determine whether discovery will be
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`permitted. Id. at 942. A party seeking class certification is “not always entitled to discovery on
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`the class certification issue,” but in some cases, “the propriety of a class action cannot be
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`determined . . . without discovery.” Id. The “better and more advisable practice” for a district
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`court is to provide litigants “an opportunity to present evidence regarding whether a class action is
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`maintainable.” Id.
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`III. MOTION TO DISMISS ANALYSIS
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`Section 10b makes it “unlawful for any person, directly or indirectly . . . [t]o use or
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`employ, in connection with the purchase or sale of any security registered on a national securities
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`exchange or any security not so registered . . . any manipulative or deceptive device or contrivance
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`in contravention of [the SEC’s rules and regulations].” 15 U.S.C. § 78j. Rule 10b–5 categorizes
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`violations of the statute into three categories:
`(a) to employ any device, scheme, or artifice to defraud;
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`(b) to make any untrue statement of a material fact or omit to state a
`material fact necessary in order to make the statements made, in
`the light of the circumstances under which they were made, not
`misleading; or
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`(c) to engage in any act, practice, or course of business which
`operates or would operate as a fraud or deceit upon any person, in
`connection with the purchase or sale of any security.
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`17 C.F.R. § 240.10b–5.
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`Courts have generally categorized deceptive and manipulative devices into
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`misrepresentations, omissions by those with a duty to disclose, or manipulative acts. Desai v.
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`Deutsche Bank Sec. Ltd., 573 F.3d 931, 938 (9th Cir. 2009) (citing Ganino v. Citizens Utils.
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`Co., 228 F.3d 154, 161 (2d Cir.2000)). Misrepresentations and omissions tend to fall under Rule
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`10b-5(b) and manipulative conduct and acts tend to fall under Rule10b-5(a) or (c). Id. However,
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`there is overlap among the different subsections. Lorenzo v. SEC, 139 S.Ct. 1094, 1102 (2019).
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`Here, plaintiff brings a cause of action under each subsection based on alleged
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`misrepresentations, omissions, and fraudulent conduct. The Court addresses each below.
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`A.
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`Second Cause of Action: Violation of Rule 10b-5(b): Claim Based on Alleged False
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`and Misleading Statements and Omissions 2
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`Robinhood argues that plaintiff’s Section 10(b) and Rule 10b-5(b) claim should be
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`dismissed because plaintiff fails to plead with particularity (i) an actionable misstatement or
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`omission, (ii) facts giving rise to a strong inference of scienter, and (iii) reliance. To state a claim
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`thereunder, a plaintiff must “show that the defendant made a statement that was ‘misleading as to
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`a material fact.’” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38 (2011) (quoting Basic
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`Inc. v. Levinson, 485 U.S. 224, 238 (1988)) (emphasis in original). Thus, a plaintiff must allege:
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`“(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection
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`between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon
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`the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Id. at 37–38
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`(quoting Stoneridge Investment Partners, LLC v. Scientific–Atlanta, Inc., 552 U.S. 148, 157
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`(2008)). Here, Robinhood challenges the sufficiency of the first, second, and fourth elements,
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`which the Court examines.
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`i. Material Misrepresentations or Omissions
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`A material misrepresentation or omission is adequately alleged “when a plaintiff points to
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`[the] defendant’s statements that directly contradict what the defendant knew at that time.” Khoja
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`2 Consistent with the parties’ order of briefing, the Court analyzes plaintiff’s second cause
`of action first.
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`v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1008 (9th Cir. 2018) (citing In re Astossa Genetics
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`Inc. Sec. Litig., 868 F.3d 784, 794–96 (9th Cir. 2017)). The statement must be “capable of
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`objective verification.” Or. Pub. Emps. Ret. Fund. v. Apollo Grp. Inc., 774 F.3d 598, 606 (9th Cir.
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`2017) (internal quotation marks omitted). For example, “puffing”—expressing an opinion rather
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`than a knowing false statement of fact—is not actionable. Id.; see also Lloyd v. CVB Fin. Corp.,
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`811 F.3d 1200, 1206–07 (9th Cir. 2016); In re Cutera Sec. Litig. 610 F.3d 1103, 1111 (9th Cir.
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`2010). Qualitative buzzwords such as “good,” “well-regarded,” or other “vague statements of
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`optimism” cannot form the basis of a false or misleading statement under the PSLRA. Apollo, 774
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`F.3d at 606 (citations omitted.)
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`Even if a statement is not false, it may be misleading if it omits material information.
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`Khoja, 899 F.3d at 1008–09 (citing In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1054 (9th Cir.
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`2014)). A plaintiff must prove that the omission is both misleading and material. In re Alphabet,
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`Inc. Sec. Litig., 1 F.4th 687, 699 (9th Cir. 2021). The Ninth Circuit applies an objective standard
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`of a “reasonable investor” to determine whether a statement is misleading. Id. (citing In re
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`VeriFone Sec. Litig., 11 F.3d 865, 869 (9th Cir. 1993)). “A misleading omission is material if
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`‘there is ‘a substantial likelihood that [it] would have been viewed by the reasonable investor as
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`having significantly altered the ‘total mix’ of information made available’ for the purpose of
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`decisionmaking by stockholders concerning their investments.” Id. at 699-700 (citations omitted).
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`That said, omissions are actionable only where they “make the actual statements
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`misleading”; it is not sufficient that an investor merely “consider[ed] the omitted information
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`significant.” Markette v. XOMA Corp., No. 15-CV-3425 (HSG), 2017 WL 4310759, at *7 (N.D.
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`Cal. Sept. 28, 2017) (internal quotation marks omitted). Section 10(b) and Rule 10b-5(b) “do not
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`create an affirmative duty to disclose any and all material information,” but instead a duty to
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`include all facts necessary to render a statement accurate and not misleading, once a company
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`elects to disclose that material information. Matrixx Initiatives, Inc., 563 U.S. at 44; 17 C.F.R. §
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`240.10b-5(b). Thus, “[i]f the challenged statement is not false or misleading, it does not become
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`actionable merely because it is incomplete.” In re Immune Response, 375 F. Supp. 2d at 1017
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`(quoting In re Vantive Corp. Sec. Litig., 283 F.3d 1079, 1085 (9th Cir. 2002)). To provide
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`Case 4:20-cv-09328-YGR Document 110 Filed 10/13/22 Page 10 of 24
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`sufficient notice, plaintiff, “in addition to alleg[ing] the ‘time, place[,] and nature of the alleged
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`fraudulent activities,’ must ‘plead evidentiary facts’ sufficient to establish any allegedly false
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`statement ‘was untrue or misleading when made.’” Wozniak v. Align Tech., Inc., 850 F. Supp. 2d
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`1029, 1034 (N.D. Cal. 2012).
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`Here, plaintiff challenges six specific statements and/or omissions, namely Robinhood’s:
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`(a) statement that its execution quality and speed matches or beats what is found at other major
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`brokerages; (b) omission of PFOF from descriptions of its revenue sources on its FAQ page; (c)
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`failure to disclose its unique business model of charging significantly higher PFOF than other
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`brokers at the expense of the price improvement available to its customers; (d) statement that the
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`PFOF revenue it received was “indirect” and “negligible,” and that if PFOF ever became a
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`significant source of revenue, it would inform customers of those facts on its “How does
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`Robinhood make money” FAQ page; (e) omission of information about PFOF in communications
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`with customers; and (f) promise to provide “commission free” trading. The Court discusses each
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`statement in turn.
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`a. Statement of Execution Quality, Speed, and Performance
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`Plaintiff challenges Robinhood’s statement about its execution quality, speed, and
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`performance relative to other major brokerage companies. On its FAQ page, Robinhood included
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`the following:
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`What is the execution quality for orders on Robinhood?
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`Reg NMS ensures your order gets executed at the national best bid and offer, or
`better, at the time of execution. Our execution quality and speed matches or beat
`what’s found at other major brokerages. Even when measured at the time of
`routing, our customers’ orders get executed at the NBBO or better. By way of
`example, in August 2018, 99.12% of our customers’ marketable orders were
`executed at the the [sic] national best bid and offer or better with an execution
`speed of 0.08 seconds from routing to execution (for S&P 500 stocks, during
`market hours).
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`(Compl. ¶ 75; challenged statement in italics.) Plaintiff alleges that this statement is false and
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`misleading because Robinhood’s “execution quality” was actually inferior to other major
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`brokerages when comparing Robinhood’s core business model of generating revenue primarily
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`through PFOF. Based on internal analyses, plaintiff points to information showing that
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`Robinhood’s “percentage [of] orders receiving price improvement lag[ged] behind that of other
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`retail brokerages,” and “that the amount of price improvement obtained for Robinhood customers
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`was far lower than at competing broker-dealers.” (Id. ¶¶ 88-90.)
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`Plaintiff’s argument conflates issues by divorcing the statement from the remaining
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`sentences in the FAQ response. Read in context, the “execution quality” statement only references
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`orders being executed at the NBBO, or better. The first sentence in the FAQ guarantees that
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`“orders get executed at the national best bid and offer, or better.” The third and fourth sentences
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`also reference Robinhood’s execution quality relative to the NBBO. Nowhere in the FAQ
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`response did Robinhood represent “quality” related to its price improvement. Thus, the Court finds
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`that the statement read in context refers to the quality and execution of trades being executed at the
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`NBBO.
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`The complaint does not include any allegations or analyses regarding how Robinhood
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`compared to other major brokerages with respect to its execution of trades at the NBBO.3 Thus,
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`the Court finds that plaintiff has not sufficiently alleged that Robinhood’s statement of its quality
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`and execution is false or misleading.
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`b. Omission of PFOF from FAQ Page
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`Second, with respect to Robinhood’s omission of PFOF from descriptions of its revenue
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`sources on its FAQ page, plaintiff alleges that the omission was misleading because PFOF was a
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`large source of revenue for Robinhood during the class period. Robinhood argues that the alleged
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`omission is not actionable not only because Robinhood disclosed its receipt of PFOF through
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`various means, including on other parts of its websites, customer agreements, and customer trade
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`confirmations, but that such information was widely reported by various mainstream news
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`sources.4
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`The Court disagrees. By suggesting that it was answering “How Robinhood Makes
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`3 Given plaintiff’s interpretation, it is not surprising that the complaint does not.
`4 The parties do not dispute that Robinhood’s decision to outline some of its revenue
`sources on its FAQ page created a duty for Robinhood to disclose PFOF as a source of revenue
`because its other revenue sources were disclosed. (See Dkt. No. 104, Defendants’ Reply, at 3-4.)
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`Money” on the FAQ page, Robinhood was under a duty to ensure its disclosures on that page were
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`complete, accurate, and not misleading.
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`Accordingly, plaintiff has sufficiently alleged that Robinhood’s omission of PFOF from its
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`FAQ page caused its disclosures on the page to be incomplete, false and misleading. Thus, the
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`omission is actionable.
`c. Failure to Disclose Business Model of Charging Higher PFOF than Other
`Brokers
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`Third, with respect to Robinhood’s alleged omission of its business model of charging
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`higher PFOF than other brokers and other details of its PFOF arrangements with principal trading
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`firms, again Robinhood argues that such omissions are not actionable. In particular, Robinhood
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`claims no independent duty to disclose the detailed level of information that plaintiff has
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`identified, such as the “material details of Robinhood’s PFOF arrangement with its principal
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`trading firms,” “the significance of PFOF to Robinhood’s business model,” and that Robinhood’s
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`receipt of PFOF allegedly came “at the expense of customers’ price improvement.”
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`Here, the Court agrees with Robinhood and finds that plaintiff has not sufficiently alleged
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`that Robinhood’s disclosure of its revenue sources on its FAQ page or its references to
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`commission-free trading created a duty for Robinhood to disclose the level of detailed information
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`about Robinhood’s business model that plaintiff has identified. Robinhood’s FAQ contains only
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`general, not detailed, information about Robinhood’s other revenue sources. Thus, only general
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`information is required here.
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`Further, plaintiff fails to connect how Robinhood’s statement of its revenue sources on its
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`FAQ page, or any statement by Robinhood, was made false and misleading by the omission of
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`such information regarding the amount of PFOF received compared to other brokers or the other
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`specific information plaintiff identified.
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`Additionally, to the extent plaintiff relies on Robinhood’s prior assurance that it would
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`inform customers through its FAQ page if PFOF ever become a significant source of revenue, that
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`statement does not create a duty for Robinhood to disclose the information that plaintiff identifies
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`because that statement was made prior to the start of the class period. Plaintiff’s counsel conceded
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`as much during the hearing on Robinhood’s first motion to dismiss. (See Dkt. No. 97, Feb. 15,
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`Case 4:20-cv-09328-YGR Document 110 Filed 10/13/22 Page 13 of 24
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`2022, Hr’g Tr. 16:8-17:17.)
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`Courts in this district have found that actionable statements must fall within
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`the class period. See Hodges v. Akeena Solar, Inc., No. C 09-02147 JW, 2010 WL 3705345, at *2
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