Case 1:21-md-02989-CMA Document 449 Entered on FLSD Docket 01/07/2022 Page 1 of 47
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` UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF FLORIDA
`
`CASE NO. 21-MD-2989-ALTONAGA/TORRES
`
`In re:
`
`JANUARY 2021 SHORT SQUEEZE
`TRADING LITIGATION
`
`_____________________________________/
`
`This Document Relates to the Federal Securities Tranche
`
`
`
`DEFENDANTS ROBINHOOD MARKETS, INC., ROBINHOOD FINANCIAL LLC AND
`ROBINHOOD SECURITIES, LLC’S MOTION TO DISMISS THE FEDERAL
`SECURITIES TRANCHE COMPLAINT AND INCORPORATED
`MEMORANDUM OF LAW
`
`
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`
`
`

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`Case 1:21-md-02989-CMA Document 449 Entered on FLSD Docket 01/07/2022 Page 2 of 47
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`TABLE OF CONTENTS
`
`2.
`
`II.
`
`TABLE OF AUTHORITIES .......................................................................................................... ii
`PRELIMINARY STATEMENT .....................................................................................................1
`BACKGROUND .............................................................................................................................4
`LEGAL STANDARD ....................................................................................................................11
`ARGUMENT .................................................................................................................................13
`I.
`PLAINTIFFS DO NOT PLEAD MARKET MANIPULATION UNDER EITHER
`SECTION 9(a) OR SECTION 10(b) OF THE SECURITIES EXCHANGE ACT...........13
`A.
`Plaintiffs Do Not Adequately Plead Manipulative Conduct. .................................14
`1.
`Plaintiffs Do Not Allege that Robinhood Deceived Investors About
`Its Purchase Restrictions. ...........................................................................15
`Plaintiffs Do Not Allege a Violation of Any of the Six Subsections
`of Section 9(a). ...........................................................................................19
`Plaintiffs Do Not Adequately Plead the Requisite State of Mind. .........................23
`B.
`PLAINTIFFS DO NOT PLEAD A MISREPRESENTATION CLAIM UNDER
`SECTION 10(b) OF THE SECURITIES EXCHANGE ACT. .........................................26
`A.
`Plaintiffs Cannot Bring a Section 10(b) Claim Based on Robinhood’s
`Statements About Its Own Business To Recover Alleged Losses from
`Plaintiffs’ Sale of Securities of Other Companies. ................................................28
`1.
`Plaintiffs Lack Statutory Standing. ............................................................28
`2.
`Plaintiffs Cannot Satisfy the “In Connection With” Element. ...................30
`Plaintiffs Do Not Adequately Plead Other Essential Elements of Their
`Section 10(b) Misrepresentation Claim. ................................................................31
`1.
`Plaintiffs Do Not Adequately Plead Any False or Misleading
`Statements. .................................................................................................31
`Plaintiffs Do Not Adequately Plead Loss Causation. ................................34
`2.
`Plaintiffs Do Not Adequately Plead Scienter.............................................36
`3.
`III.
`PLAINTIFFS’ CLAIMS SHOULD BE DISMISSED WITH PREJUDICE. ....................39
`CONCLUSION ..............................................................................................................................39
`
`
`B.
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`Case 1:21-md-02989-CMA Document 449 Entered on FLSD Docket 01/07/2022 Page 3 of 47
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`
`
`Cases
`
`TABLE OF AUTHORITIES
`
`Page(s)
`
`Ashcroft v. Iqbal, 556 U.S. 662 (2009) ..........................................................................................11
`
`ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) ...................... passim
`
`Baum v. Phillips, Appel & Walden, Inc., 648 F. Supp. 1518 (S.D.N.Y. 1986), aff’d
`sub nom. Asch v. Philips, Appel & Walden, Inc., 867 F.2d 776 (2d Cir. 1989) ................20, 24
`
`Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ..........................................................................11
`
`Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975) ..............................................29, 30
`
`Brady v. Top Ships Inc., No. 17-cv-4987 (BMC), 2019 WL 3553999
`(E.D.N.Y. Aug. 5, 2019), aff’d sub nom. Onel v. Top Ships, Inc.,
`806 F. App’x 64 (2d Cir. 2020) ...................................................................................16, 18, 23
`
`Bryant v. Avado Brands, Inc., 187 F.3d 1271 (11th Cir. 1999) .................................................6, 13
`
`Carvelli v. Ocwen Fin. Corp., 934 F.3d 1307 (11th Cir. 2019) .....................................................12
`
`Chill v. Gen. Elec. Co., 101 F.3d 263, 268 (2d Cir. 1996) ............................................................37
`
`Cohen v. Stevanovich, 722 F. Supp. 2d 416 (S.D.N.Y. 2010) .....................................12, 17, 19, 26
`
`Connolly v. Havens, 763 F. Supp. 6 (S.D.N.Y. 1991) ...................................................................12
`
`Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787 (2d Cir. 1969) ................................16, 24
`
`Crummere v. Smith Barney, Harris, Upham & Co., 624 F. Supp. 751
`(S.D.N.Y. 1985) .......................................................................................................................30
`
`D.A.M. v. Barr, 474 F. Supp. 3d 45 (D.D.C. 2020) .....................................................................5, 7
`
`Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005) .........................................................34, 35, 36
`
`Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976)..................................................................13, 19
`
`Fezzani v. Bear, Stearns & Co., 384 F. Supp. 2d 618 (S.D.N.Y. 2004) ........................................12
`
`FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282 (11th Cir. 2011) ........................ passim
`
`GFL Advantage Fund, Ltd. v. Colkitt, 272 F.3d 189 (3d Cir. 2001) .............................................15
`
`Gurary v. Winehouse, 190 F.3d 37 (2d Cir. 1999) ........................................................................15
`
`
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`
`
`Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) ...............................................27
`
`Harbinger Capital Partners LLC v. Deere & Co., 632 F. App’x 653
`(2d Cir. 2015) ...........................................................................................................................28
`
`Harris v. Ivax Corp., 182 F.3d 799 (11th Cir. 1999) .....................................................................32
`
`Henningsen v. ADT Corp., 161 F. Supp. 3d 1161 (S.D. Fla. 2015) ........................................31, 38
`
`I.B. Trading, Inc. v. Tripoint Glob. Equities, LLC, 280 F. Supp. 3d 524
`(S.D.N.Y. 2017) .......................................................................................................................14
`
`In re Altisource Portfolio Solutions, S.A. Securities Litigation, No. 14-81156,
`2015 WL 12001262 (S.D. Fla. Sept. 4, 2015) .........................................................................29
`
`In re Galectin Therapeutics, Inc. Sec. Litig., 843 F.3d 1257 (11th Cir. 2016) ..............................13
`
`In re GeoPharma, Inc. Sec. Litig., 399 F. Supp. 2d 432 (S.D.N.Y. 2005) ..............................38, 39
`
`In re Merrill Lynch Auction Rate Sec. Litig., 704 F. Supp. 2d 378
`(S.D.N.Y. 2010), aff’d sub nom. Wilson v. Merrill Lynch & Co., Inc.,
`671 F.3d 120 (2d Cir. 2011).....................................................................................................17
`
`In re Nortel Networks Corp. Sec. Litig., 238 F. Supp. 2d 613 (S.D.N.Y. 2003) ...........................30
`
`In re Williams Sec. Litig.–WCG Subclass, 558 F.3d 1130 (10th Cir. 2009)..................................34
`
`Janus Capital Group v. First Derivative Traders, 564 U.S. 135 (2011) .......................................29
`
`Kraft v. Third Coast Midstream, No. 19-CV-9398 (LJL), 2021 WL 860987
`(S.D.N.Y. Mar. 8, 2021) ..........................................................................................................16
`
`La Grasta v. First Union Sec., Inc., 358 F.3d 840 (11th Cir. 2004) ................................................6
`
`Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005) ........................................................35
`
`Luce v. Edelstein, 802 F.2d 49 (2d Cir. 1986) ...............................................................................27
`
`Menora Mivtachim Ins. Ltd. v. Int’l Flavors & Fragrances Inc.,
`No. 19 CIV. 7536, 2021 WL 1199035 (S.D.N.Y. Mar. 30, 2021) ....................................29, 30
`
`Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049 (9th Cir. 2008) ........................27
`
`Meyer v. Greene, 710 F.3d 1189 (11th Cir. 2013) ...................................................................34, 35
`
`Mills v. Polar Molecular Corp., 12 F.3d 1170 (2d Cir. 1993).......................................................31
`
`Mizzaro v. Home Depot, Inc., 544 F.3d 1230 (11th Cir. 2008) .....................................................13
`
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`
`
`Ontario Public Service Employees Union Pension Trust Fund v.
`Nortel Networks Corp., 369 F.3d 27 (2d Cir. 2004) ..........................................................28, 29
`
`Panfil v. ACC Corp., 768 F. Supp. 54 (W.D.N.Y. 1991) ..................................................21, 22, 24
`
`Pelletier v. Stuart-James Co., 863 F.2d 1550 (11th Cir. 1989) .....................................................30
`
`Pross v. Katz, 784 F.2d 455 (2d Cir. 1986) ...................................................................................30
`
`Ray v. Lehman Bros. Kuhn Loeb, 624 F. Supp. 16 (N.D. Ga. 1984) .............................................24
`
`Robbins v. Koger Properties, Inc., 116 F.3d 1441 (11th Cir. 1997)..............................................34
`
`Santa Fe Indus., Inc. v. Green, 430 U.S. 462 (1977) .....................................................................15
`
`Saxe v. E.F. Hutton & Co., 789 F.2d 105 (2d Cir. 1986) ..............................................................31
`
`SEC v. Lek Sec. Corp., 276 F. Supp. 3d 49 (S.D.N.Y. 2017) ........................................................20
`
`SEC v. Malenfant, 784 F. Supp. 141 (S.D.N.Y. 1992) ..................................................................15
`
`SEC v. Resch-Cassin & Co., 362 F. Supp. 964 (S.D.N.Y. 1973) ............................................15, 24
`
`South Cherry Street, LLC v. Hennessee Group LLC, 573 F.3d 98 (2d Cir. 2009) ........................23
`
`Spencer Cos. v. Agency Rent-A-Car, Inc., No. 81-2097-S, 1981 WL 1680
`(D. Mass. Sept. 21, 1981) ........................................................................................................20
`
`Sterne, Agee & Leach, Inc. v. Nat’l Sec. Clearing Corp., No. CV-07-BE-909-S,
`2008 WL 11424178 (N.D. Ala. Sept. 30, 2008) ......................................................................12
`
`Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008) ...........................29
`
`Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308 (2007) .......................................12, 26, 38
`
`Trane Co. v. O’Connor Sec., 561 F. Supp. 301 (S.D.N.Y. 1983)......................................17, 23, 25
`
`Univ. Express, Inc. v. SEC, 177 F. App’x 52 (11th Cir. 2006) ......................................................17
`
`Urcuyo v. Invertec Corp., No. 05-22291-CIV, 2006 WL 8433171
`(S.D. Fla. May 2, 2006) ...........................................................................................................30
`
`Wilson v. Merrill Lynch & Co., 671 F.3d 120 (2d Cir. 2011) ........................................................15
`
`Y-GAR Cap. LLC v. Credit Suisse Grp. AG, No. 19 Civ. 2827 (AT),
`2020 WL 71163 (S.D.N.Y. Jan. 2, 2020) ................................................................................22
`
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`Statutes & Rules
`
`15 U.S.C. § 78i ...................................................................................................................... passim
`
`15 U.S.C. § 78j ...................................................................................................................... passim
`
`15 U.S.C. § 78u-4 .................................................................................................................. passim
`
`17 C.F.R. § 240.10b-5 ............................................................................................................ passim
`
`17 C.F.R. § 240.17Ad-22 .................................................................................................................4
`
`Fed. R. Civ. P. 9 ..................................................................................................................... passim
`
`Fed. R. Civ. P. 12 .......................................................................................................................1, 11
`
`Fed. R. Evid. 201 .............................................................................................................................5
`
`Other Authorities
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`62 Fed. Reg. 520-01 (Jan. 3, 1997) ................................................................................................22
`
`Order Dismissing the Antitrust Amended Complaint, In re January 2021 Short
`Squeeze Trading Litigation, 21-2989-MDL-ALTONAGA/Torres
`(S.D. Fla. Nov. 17, 2021), ECF No. 438 ...............................................................25, 31, 32, 37
`
`Securities and Exchange Comm’n, Securities Exchange Act Release No. 4163
`(Sept. 16, 1948) ........................................................................................................................23
`
`Securities and Exchange Comm’n, “Thinking About Investing in the Latest Hot
`Stock?” (Jan. 30, 2021) (“Jan. 30 SEC Statement”), available at
`https://www.sec.gov/oiea/investor-alerts-and-bulletins/risks-short-term-
`trading-based-social-media-investor-alert ...............................................................................17
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`Pursuant to Federal Rule of Civil Procedure 12(b)(6), Defendants Robinhood
`Markets, Inc., Robinhood Financial LLC and Robinhood Securities, LLC (together,
`“Robinhood”) respectfully submit this memorandum of law in support of their Motion to
`Dismiss the Amended Consolidated Class Action Complaint for the Federal Securities Tranche
`(“Compl.”) (ECF No. 446) for failure to state a claim.
`PRELIMINARY STATEMENT
`
`Plaintiffs in this tranche of the MDL bring federal securities claims against
`Robinhood, alleging market manipulation and fraudulent misrepresentations. Plaintiffs’ claims
`fail because the securities laws do not prohibit the conduct alleged here.
`The market manipulation claims fail for a number of reasons, most fundamentally
`because Robinhood publicly disclosed the purchase restrictions it temporarily imposed on the
`volatile stocks at issue. As a result, Plaintiffs do not—and cannot—state a claim for market
`manipulation, which necessarily requires a defendant to deceive the market about its conduct.
`Separately, Plaintiffs’ misrepresentation claim fails for numerous reasons, but the
`most basic reason is that the alleged misstatements were made by Robinhood about Robinhood,
`not about any company in which Plaintiffs held stock. At the time of the alleged
`misrepresentations, Plaintiffs did not hold Robinhood stock. They held stock of various other
`companies. In these circumstances, Plaintiffs do not—and cannot—state a claim for fraudulent
`misrepresentation.
`As this Court is now well aware, the events of January 2021 led to unprecedented
`trading volatility for a number of “meme” stocks. Trading volume rapidly ratcheted up over the
`course of several days as retail investors sought to effect a short squeeze in stocks perceived to
`be the target of short selling by hedge funds. As a result, trading volume and volatility in several
`stocks reached historic levels on January 27 and 28, 2021. This led the National Securities
`Clearing Corporation (“NSCC”), early in the morning on January 28, 2021, to impose large
`collateral requirements on its members to cover the trade orders and risk, including an
`unprecedented $3 billion deposit requirement for Robinhood Securities. Despite various
`proactive efforts over the preceding days to mitigate the volatility, Robinhood Securities had no
`choice but to implement a “position closing only” restriction (a “PCO”) on 13 of the most
`volatile stocks. The PCO temporarily restricted purchases of the stocks at issue. It did not
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`restrict sales of those stocks. Robinhood lifted the PCO restriction for those 13 stocks after only
`a day. For the next five trading days, Robinhood Securities maintained purchasing limits that
`temporarily capped the number of shares of certain volatile stocks a customer could hold on
`Robinhood’s platform. Robinhood publicly announced each of those purchase limits on its
`website, which it regularly updated as Robinhood Securities adjusted those limits. By Friday,
`February 5, 2021, Robinhood Securities had lifted all of the purchase limits.
`Plaintiffs traded in the meme stocks both during and after the January 2021 short
`squeeze and now seek to blame Robinhood for losses from their decision to sell some of those
`stocks while Robinhood’s PCO was in place. Plaintiffs bring their claims on behalf of a putative
`class of all investors in the United States—including non-Robinhood customers, with whom
`Robinhood never interacted—who held any of the nine Affected Stocks on January 27, 2021, and
`sold shares of those stocks at a loss during the alleged Class Period of the six trading days from
`January 28 through February 4, 2021. Of course, it was Plaintiffs’ decision to sell shares when
`they did; Robinhood did nothing to force them to sell. Indeed, for many of the stocks at issue,
`Plaintiffs could have sold their shares at a profit during the alleged Class Period, and Lead
`Plaintiff Laine-Beveridge did just that. In any event, Plaintiffs fail entirely to state a claim under
`the Federal securities laws.
`First, Plaintiffs assert claims for market manipulation under Sections 9(a) and
`10(b) of the Securities Exchange Act (the “Exchange Act”). They allege that Robinhood put in
`place its purchasing limits with the knowledge that doing so would drive down the market prices
`of the Affected Stocks. As a threshold matter, market manipulation claims under either section
`require deception, and there can be no deception where information is publicly disclosed and
`available to the market. This alone is fatal to Plaintiffs’ claims, as they concede that Robinhood
`disclosed all of its purchasing restrictions promptly and publicly. (See infra Section I.A.1.)
`Beyond this fundamental threshold problem, Plaintiffs also fail to plead conduct that violates any
`of the provisions of Section 9(a) of the Exchange Act, which consists of six specific subsections,
`setting out the various forms of prohibited market manipulation. Plaintiffs do not even identify
`which subsection they allege Robinhood violated, and, in any event, Plaintiffs fail to plead the
`elements of a claim under any of the six subsections. (See infra Section I.A.2.)
`In addition, Plaintiffs fail to plead facts that give rise to a strong inference of
`scienter, as required under either Section 9(a) or Section 10(b). Plaintiffs cannot point to any
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`2
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`direct evidence of scienter or articulate a plausible reason why Robinhood would manipulate the
`market to lower the prices of the Affected Stocks. Plaintiffs do not allege that Robinhood owned
`or bought any of the Affected Stocks or stood to profit in any way from price declines in the
`Affected Stocks. Instead, Plaintiffs offer two potential motives for Robinhood to allegedly
`manipulate the prices for the Affected Stocks. Their first theory is that Robinhood sought to
`protect a potential future IPO by lowering the prices of the Affected Stocks to meet its deposit
`requirements. But the success of Robinhood’s IPO, which would not occur for another six
`months, had nothing to do with the prices at which the Affected Stocks traded. Plaintiffs’ second
`theory, relying on paraphrased and generalized allegations from the Antitrust Tranche complaint
`that the Court has already rejected, is that Robinhood acted to “help” Citadel Securities cover a
`hypothetical proprietary trading position by driving down the prices of the Affected Stocks.
`What both of these theories lack is a core requirement for a manipulation claim—that Robinhood
`acted with the intent to drive down the prices of the Affected Stocks and thereby profit from the
`manipulated stock prices. For each of these reasons, Plaintiffs’ market manipulation claims fail.
`(See infra Section I.B.)
`Second, Plaintiffs allege a violation of Section 10(b) and Rule 10b-5 based on
`alleged fraudulent misrepresentations. Specifically, Plaintiffs allege that Robinhood made false
`statements about Robinhood’s own business that somehow deceived investors in connection with
`their purchase or sale of securities issued by other companies (the Affected Stocks). None of the
`Plaintiffs alleges that he or she was an investor in Robinhood (which was not even a public
`company at the time). Section 10(b) does not give rise to such an expansive right of action for
`misrepresentations. Robinhood is unaware of any case in which a court has permitted a Section
`10(b) claim for losses in securities issued by Company B based on Company A’s allegedly false
`statements about Company A’s business. Such a theory is particularly illogical here, where none
`of the statements alleged by Plaintiffs even refers to any of the Affected Stocks or their issuers.
`As a result, Plaintiffs lack statutory standing to bring a Section 10(b) claim and fail to allege
`facts that would meet the element that any misrepresentation was made “in connection with” the
`purchase or sale of securities. (See infra Section II.A.)
`Plaintiffs also fail sufficiently to plead a number of other required elements of a
`Section 10(b) misrepresentation claim including: (1) facts sufficient to show that any of
`Robinhood’s statements were false or misleading; (2) loss causation, as Plaintiffs do not allege
`
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`that disclosure of the alleged falsity of Robinhood’s statements affected the price of any of the
`Affected Stocks; or (3) facts sufficient to establish scienter. (See infra Section II.B.)
`Accordingly, for the reasons stated above and explained in greater detail below,
`the Complaint must be dismissed.
`
`BACKGROUND
`
`A.
`
`Robinhood’s Trading Platform.
`
`Robinhood is an industry-changing financial services company founded on the
`ethos of putting financial power into the hands of everyday people. (Compl. ¶ 31.)
`Robinhood’s securities business currently comprises three entities: Robinhood Markets, Inc.
`(“Robinhood Markets”), which wholly owns Robinhood Financial LLC (“Robinhood
`Financial”), the customer-facing introducing broker, and Robinhood Securities, LLC
`(“Robinhood Securities”), the clearing broker. (Id. ¶¶ 23-25.) Robinhood provides intuitive,
`easy access to the financial markets by offering zero commission trades and a logical trading
`platform available on a computer or mobile device. (Id. ¶ 38.)
`A securities transaction is a multi-step process. When a Robinhood customer
`places an order to buy or sell a security using their Robinhood account, Robinhood Financial, as
`the introducing broker, may first choose whether to accept the order; should it do so, it sends the
`order to Robinhood Securities, the clearing broker. (Id. ¶¶ 23-24.) Robinhood Securities then
`routes the order for execution to a market maker; following execution, Robinhood Securities
`submits the resulting trade to a clearinghouse for clearance and settlement. (Id. ¶¶ 31-32, 114.)
`The main clearinghouse for equities traded in the U.S. is the National Securities Clearing
`Corporation (“NSCC”), part of a larger clearing organization called the Depository Trust &
`Clearing Corporation (“DTCC”). (Id. ¶ 58.) Clearinghouses such as NSCC and DTCC are
`regulated by the SEC. See 17 C.F.R. § 240.17Ad-22.
`As this multi-step process unfolds, there can be some risk that market participants
`will be unable to satisfy their obligations in connection with a trade. (See generally Compl.
`¶¶ 57-58.) To mitigate this risk, clearing brokers, such as Robinhood Securities, are required to
`post collateral with NSCC to cover the risk until the trade settles. (Id. ¶¶ 58, 60.) These
`collateral requirements are often referred to as deposit requirements. (Id. ¶ 58.) To clear and
`settle customer transactions, each trading day Robinhood Securities must meet the deposit
`
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`requirements set by NSCC. (Id.)1 Depending on NSCC’s calculation of the day’s deposit
`requirements, Robinhood Securities may be able to withdraw money that it left on deposit the
`previous day, or it may be required to deposit additional money. (Id.)
`In setting the deposit requirements, NSCC considers volatility in the market; if
`NSCC perceives certain securities as being particularly risky or volatile, NSCC may assign a
`volatility multiplier or special charge that increases the deposit requirements. (Id.) Another
`component of the NSCC capital requirements is referred to as an excess capital premium, which
`NSCC may apply following a comparison of the member’s core deposit requirement against the
`member’s excess net capital. (Id.) NSCC releases the capital premium when the level of risk is
`reduced or Robinhood raises additional capital. (Id.) While NSCC calculates its daily deposit
`requirements according to set formulas, it also can exercise discretion in setting the
`requirements. (See, e.g., id. ¶¶ 12(a), 60, 91.) If Robinhood Securities were unable to meet its
`deposit requirements on a given day, NSCC could liquidate Robinhood Securities’ entire
`portfolio. (Id. ¶¶ 60, 122.) Under such circumstances, not only would Robinhood customers be
`prevented from buying any stocks (not just the Affected Stocks), but all of Robinhood
`customers’ positions would be liquidated as well. (Id. ¶ 60.)
`
`B.
`
`The Unprecedented Market Volatility of January 2021.
`
`January 2021 was marked by a series of unprecedented events in the securities
`markets that presented significant challenges to Robinhood’s ability to satisfy its initial collateral
`deposit requirements to NSCC on January 28. (Id. ¶¶ 40-43, 58-62.) In late January 2021,
`trading spiked when retail investors banded together through online forums to drive a massive
`short squeeze involving certain stocks they perceived to be the target of short selling by hedge
`funds (the “meme stocks”). (Id. ¶¶ 35, 40-47.)
`
`
`1 NSCC may also require additional deposits during a trading day. See Virtual Hearing –
`Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors
`Collide, 117th Cong. at 10 (2021) (statement of Vladimir Tenev, Chief Executive Officer,
`Robinhood Markets, Inc.), available at https://financialservices.house.gov/uploadedfiles/hhrg-
`117-ba00-wstate-tenevv-20210218.pdf (“Tenev Testimony”). The Court may take judicial
`notice of NSCC’s requirements for brokers like Robinhood Securities, which are described in
`Mr. Tenev’s testimony. See D.A.M. v. Barr, 474 F. Supp. 3d 45, 55 n.12 (D.D.C. 2020) (taking
`judicial notice of Congressional testimony because Congressional testimony “is not subject to
`reasonable dispute”) (quoting Fed. R. Evid. 201(b)(2)).
`
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`Retail investors’ activity resulted in extreme market volatility, with dramatic
`increases in stock prices. (Id. ¶¶ 40-43.) For example, on January 27, GameStop’s (GME) price
`closed at $347.51 per share, a 707.6% increase from just five trading days earlier.2 (Id. ¶¶ 41,
`76.) This surging price movement was observed despite GME’s report just a month earlier that
`its gross profit dropped from $1,311.4 million in 2019 to $810.9 million in 2020.3
`
`GME: Daily Low/High Price and Closing Price
`
`$347.51
`
`$39.36
`1/19/2021
`
`$39.12
`1/20/2021
`
`$43.03
`1/21/2021
`
`$147.98
`
`$76.79
`
`$65.01
`
`1/22/2021
`
`1/25/2021
`
`1/26/2021
`
`1/27/2021
`
`
`
`$380
`
`$340
`
`$300
`
`$260
`
`$220
`
`$180
`
`$140
`
`$100
`
`$60
`
`$20
`
`Close Price ($)
`
`
`2 See Market Activity, Nasdaq, https://www.nasdaq.com/market-activity (last visited
`Dec. 24, 2021). The Court may take judicial notice of this stock information. See La Grasta v.
`First Union Sec., Inc., 358 F.3d 840, 842 (11th Cir. 2004) (taking judicial notice of stock
`information at the motion to dismiss stage).
`3 See GameStop Corp., Annual Report (Form 10-Q) (Dec. 8, 2020) at 2. The Court may
`take judicial notice of this SEC filing. See Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1278
`(11th Cir. 1999) (“[A] court, when considering a motion to dismiss in a securities fraud case,
`may take judicial notice (for the purpose of determining what statements the documents contain
`and not to prove the truth of the documents’ contents) of relevant public documents required to
`be filed with the SEC, and actually filed.”).
`
`
`
`6
`
`

`

`Case 1:21-md-02989-CMA Document 449 Entered on FLSD Docket 01/07/2022 Page 13 of 47
`
`
`
`Indeed, in the span of just five trading days (from January 21 to January 27,
`2021), the total daily trading volume for the Affected Stocks4 increased from 230 million to
`3.3 billion shares.5
`
`3,500M
`
`3,000M
`
`2,500M
`
`2,000M
`
`1,500M
`
`1,000M
`
`500M
`
`0M
`
`Total Daily Trading Volume (Shares)
`
`3,317M
`
`1,680M
`
`1,432M
`
`386M
`
`394M
`
`230M
`
`732M
`
`1/19/2021
`
`1/20/2021
`GME
`AMC
`
`1/21/2021
`BBBY
`
`BB
`
`1/22/2021
`EXPR
`
`1/25/2021
`KOSS
`NOK
`
`1/26/2021
`TR
`TRVG
`
`1/27/2021
`
`
`
`While these unprecedented events were taking place, Robinhood Securities was
`managing the risk that the increasing trading volatility in certain securities could affect its
`deposit requirements and risk exposure. (Id. ¶¶ 13(a), 42.) As volatility involving the meme
`stocks increased, so too did Robinhood Securities’ daily deposit requirements with NSCC. On
`the days leading up to January 28, Robinhood Securities’ daily deposit requirements steadily
`increased, reaching a total of $690 million on the evening of January 27, 2021.6
`
`
`4 Plaintiffs refer to the following nine stocks as the “Affected Stocks”: AMC Entertainment
`Holdings, Inc. (AMC), Bed Bath & Beyond, Inc. (BBBY), BlackBerry Ltd. (BB), Express, Inc.
`(EXPR), GameStop Corporation (GME), Koss Corporation (KOSS), Nokia Oyj (NOK), Tootsie
`Roll Industries, Inc. (TR) and Trivago NV (TRVG). (Compl. ¶ 1.)
`5 See Market Activity, Nasdaq, https://www.nasdaq.com/market-activity (last visited
`Aug. 24, 2021). The Court may take judicial notice of stock information. See supra note 2.
`6 See Tenev Testimony at 9-10. The Court may take judicial notice of the approximate
`deposit requirements described in Mr. Tenev’s testimony in the days leading up to January 28,
`2021. See D.A.M., 474 F. Supp. 3d at 55 n.12. Indeed, Plaintiffs themselves cite Mr. Tenev’s
`
`
`
`
`7
`
`

`

`Case 1:21-md-02989-CMA Document 449 Entered on FLSD Docket 01/07/2022 Page 14 of 47
`
`
`
`Accordingly, in the days leading up to January 28, Robinhood Securities
`increased both initial and maintenance margin requirements to 100% for volatile securities such
`as GME, which meant that customers needed sufficient funds to pay for such shares in full,
`rather than being able to buy shares with credit, and needed to maintain sufficient funds in their
`accounts to cover the value of those securities, rather than using such shares as c