Corrected Consolidated Class Action Complaint, Antitrust Tranche (Partially Unredacted) — In re January 2021 Short Squeeze Trading Litigation (Dkt. 411, S.D. Fla.)
Summary
The Corrected Consolidated Class Action Complaint [Partially Unredacted Version] in In re: January 2021 Short Squeeze Trading Litigation, Case 1:21-md-02989-CMA (Case No. 21-2989-MDL-ALTONAGA/Torres, Document 411, 137 pages), in the U.S. District Court for the Southern District of Florida, entered September 21, 2021, relating to All Antitrust Actions. The Antitrust Plaintiffs file it under the Court's Order [ECF No. 362], otherwise identical to the complaint of August 23, 2021, alleging that Defendants restricted Retail Investors' access to the stock market to stop the Market Maker Defendants' losses on large short positions. The complaint seeks treble damages for violations of Section 1 of the Sherman Act and is signed for the Antitrust Tranche by Co-Lead Counsel at Joseph Saveri Law Firm, LLP and Hach Rose Schirripa & Cheverie LLP.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
- Date
- 2021-07-27
Cite this document
“Corrected Consolidated Class Action Complaint, Antitrust Tranche (Partially Unredacted) (Dkt. 411).”
Original at archive.org, dated 2021-07-27. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2021-07-27-covid-era-misc-d5ba6238-1/
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Case 1:21-md-02989-CMA Document 411 Entered on FLSD Docket 09/21/2021 Page 1 of 137
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 21-2989-MDL-ALTONAGA/Torres
IN RE:
JANUARY 2021 SHORT SQUEEZE
TRADING LITIGATION
____________________________________/
This Document Relates to:
ALL ANTITRUST ACTIONS
CORRECTED CONSOLIDATED CLASS ACTION COMPLAINT
[PARTIALLY UNREDACTED VERSION]
Pursuant to the Court's Order dated July 27, 2021 [ECF No. 362], the Antitrust Plaintiffs file this
partially unredacted Corrected Class Action Complaint. This Corrected Class Action Complaint is
otherwise identical in all respects to the complaint filed on August 23, 2021 [ECF No. 388].
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TABLE OF CONTENTS
Page(s)
INTRODUCTION ...........................................................................................................................
JURISDICTION AND VENUE......................................................................................................
PARTIES .........................................................................................................................................
A. Plaintiff Angel Guzman ......................................................................................................
B. Plaintiff Burke Minahan......................................................................................................
C. Plaintiff Christopher Miller .................................................................................................
D. Plaintiff Terell Sterling ........................................................................................................
E. Introducing Brokerage Defendants .....................................................................................
F. Self-Clearing Brokerage Defendants .................................................................................
G. Market Maker Defendants .................................................................................................
H. Clearing Defendants ...........................................................................................................
AGENTS AND CO-CONSPIRATORS .........................................................................................
CLASS ALLEGATIONS ...............................................................................................................
FACTUAL ALLEGATIONS..........................................................................................................
CLAIMS FOR RELIEF ...............................................................................................................
PRAYER FOR JUDGMENT .......................................................................................................
JURY TRIAL DEMANDED........................................................................................................
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Plaintiffs Angel Guzman, Burke Minahan, Christopher Miller, and Terell Sterling, on
behalf of themselves and all others similarly situated, bring this Class Action Complaint against
Defendants for violations of Section 1 of the Sherman Act, 15 U.S.C. § 1.
INTRODUCTION
1. This case is about individual investors (the “Retail Investors”) who invested their
hard-earned money in the stock market and were stripped of their rights to control their own
investments. Defendants and other market players hatched an anticompetitive scheme to restrict
Retail Investors’ access to the stock market and prevent the market from operating freely and
fairly. Defendants did so to protect each other, and to stop the hemorrhaging losses incurred by
the Market Maker Defendants as a result of their accumulation of large short positions.
2. Retail Investors are individual investors who make investments on their own
behalf. Retail Investors purchase securities such as stocks, bonds, options, mutual funds, and
exchange traded funds (ETFs). They execute their personal trades through websites, apps and
trading platforms provided by brokerage firms or other investment service providers. Retail
Investors tend to invest smaller amounts, as compared to institutional investors, and have little
ability to influence market prices or market dynamics on their own.
3. Historically, Retail Investors paid a fee or commission to their brokerages for
executing personal trades. Today, most brokerages do not charge their investors a fee per
transaction, rather, they earn revenue through rebates, kickbacks and other payments from
market makers. These payments are collectively known as payment for order flow.
4. When a Retail Investor places a trade through a brokerage such as Robinhood, the
brokerage routes the order to a market maker for processing and execution. When a market
maker executes an order, it makes a profit on the spread between the “bid” price, the price at
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which a market maker is willing to buy a security, and the “ask” price, the price at which a
market maker is willing to sell the security. While the market maker typically earns a modest
amount on each share of an order it fulfills, by processing a vast number of orders, market
makers can earn a substantial profit.
5. For every order, there must be a buyer and a seller. Market makers, through a
process called “internalization,” typically will take the other side of a transaction for orders
routed to them. For example, if a buy order is routed to a market maker and there is no sell order
available, market makers execute the order, either by selling a security in its inventory or by
selling short.
6. Leading up to January 27, 2021, based on their research and observations, the
Retail Investors, through stock brokerages, including the Brokerage Defendants, invested in
certain stocks—GameStop (GME), AMC Entertainment (AMC), Bed Bath & Beyond (BBBY),
BlackBerry (BB), Express (EXPR), Koss (KOSS), Nokia (NOK), Tootsie Roll Industries (TR),
and Trivago NV (TRVG) (the “Relevant Securities”)—that they believed would increase and
serve as good investment opportunities.
7. As more Retail Investors bought the Relevant Securities and these orders were
routed to market makers, such as Citadel Securities LLC (“Citadel Securities”), the market
makers acquired substantial short positions in the Relevant Securities, and were thus exposed to
massive potential losses as the prices of the Relevant Securities increased.
8. “Short” sellers borrow securities believing that that price of the securities will
decrease. If the price of the security in fact drops, a short seller buys the security back at a lower
price and returns it to the lender. The difference between the sell price and the buy price is the
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profit. Short sellers essentially bet on a security’s failure or decline rather than its success or
increase.
9. Along with market makers such as Citadel Securities, several large hedge funds
and investment firms, including Maplelane Capital, LLC, Melvin Capital Management LP, and
others, established massive short positions in the Relevant Securities.
10. In so doing, the hedge funds, market makers, and other unnamed co-conspirators
made highly speculative bets. When the Relevant Securities increased in value, due in large part
to Retail Investors purchasing the Relevant Securities, hedge funds were exposed to massive
potential losses of several billion dollars.
11. As more Retail Investors bought the Relevant Securities, those orders were routed
to Citadel Securities through the Brokerage Defendants. Citadel Securities took the other side of
the buy orders placed by the Retail Investors, i.e., Citadel Securities sold the Relevant Securities
short in order to complete the routed retail investors’ orders. Citadel Securities, as it took the
other side of more and more buy orders, acquired a substantial short position in the Relevant
Securities, and was similarly exposed to massive potential losses.
12. As Retail Investors and others continued to purchase the Relevant Securities, the
hedge funds, Clearing Defendants, Citadel Securities and unnamed co-conspirators were caught
in a classic “short squeeze.” A “short squeeze” occurs when a stock or other asset rises sharply in
value, distressing short positions. Short selling investors are faced with a rapid increase in the
shorted asset’s value, exposing the short seller to increased and theoretically limitless loss. As the
price of the asset rises, short sellers face pressure to buy back stock to exit their short positions to
mitigate their losses. In the absence of intervention, as short sellers exit their short positions to
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buy back stocks to cover their shorts, their repurchase of stock further increases the price of the
stock, compounding their losses.
13. On January 27, 2021, Citadel Securities executed short trades in the Relevant
Securities in the after-hours session to develop larger short positions in the Relevant Securities in
anticipation of the Relevant Securities declining in price on January 28, 2021.
14. The Brokerage Defendants, along with Citadel Securities and the Clearing
Defendants (collectively, “Defendants”) conspired to prevent the Retail Investors from
purchasing shares of the Relevant Securities. On January 28, 2021, the Brokerage Defendants
disabled all buy features for the Relevant Securities on their platforms thereby stripping the
demand-side and halting the price appreciation in the Relevant Securities. Defendants’ action
drove the stock prices down and forced Retail Investors to sell shares of their Relevant
Securities. At the point in time where the Brokerage Defendants engaged in this conspiratorial
effort to thwart buyers, the Relevant Securities had appreciated to unprecedented levels. Such
highly appreciated stocks are generally sensitive to reversals in price and can make sharp price
movements lower when a reversal occurs. Defendants were aware of this dynamic and the
propensity of the Relevant Securities to drop substantially as a result of the Defendants’
collective action to prevent customers from buying the Relevant Securities.
15. In furtherance of the conspiracy, the Brokerage Defendants, operating trading
platforms through websites and mobile applications—restricted Retail Investors from purchasing
the Relevant Securities on their platforms and thereby halted the price appreciation in the
Relevant Securities. This conduct predictably and foreseeably caused a loss of confidence in the
Relevant Securities and an ensuing panic selloff by the Retail Investors. The Brokerage
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Defendants did this to ensure that the stock prices for the Relevant Securities did not appreciate
further and would instead sharply decrease in furtherance of the conspiracy.
16. Defendants and their co-conspirators forced Retail Investors to choose between
selling the Relevant Securities at a lower price or holding their rapidly declining positions in the
Relevant Securities. Defendants did so with the propose of driving down the prices of the
Relevant Securities. By forcing the Retail Investors to sell their Relevant Securities at lower
prices than they otherwise would have, Defendants artificially constricted the price appreciation
of the Relevant Securities, and reduced the price of the Relevant Securities that Retail Investors
either sold or held below the prices that they would have otherwise obtained in a competitive
market free of collusion.
JURISDICTION AND VENUE
17. Plaintiffs bring this action on their own behalf as well on behalf of the members
of the Class to recover damages, including treble damages, costs of suit, and reasonable
attorneys’ fees arising from Defendants’ violations of Section 1 of the Sherman Act, 15 U.S.C. §
1, as well as any and all equitable relief afforded to them under the federal laws pleaded herein.
18. This Court has federal question jurisdiction pursuant to 28 U.S.C. § 1331 because
the case arises under the Constitution, laws, or treaties of the United States.
19. This Court also has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1332(d)
and 1367, in that this is a class action in which the matter or controversy exceeds the sum of
$5,000,000, exclusive of interest and costs, and in which some members of the proposed Class
are citizens of a state different from some Defendants.
20. Venue is proper in this judicial District pursuant to 28 U.S.C. § 1391(b), (c) and
(d), because a substantial part of the events giving rise to Plaintiffs’ claims occurred in this
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District, a substantial portion of the affected interstate trade and commerce was carried out in this
District, and one or more of the Defendants reside in this District or are licensed to do business
in this District. Each Defendant has transacted business, maintained substantial contacts, or
committed overt acts in furtherance of the illegal scheme and conspiracy throughout the United
States, including in this District. The conspiracy occurred in this judicial District. The conspiracy
has been directed at, and has had the intended effect of, causing injury to persons residing in,
located in, or doing business throughout the United States, including in this District.
21. This Court has personal jurisdiction over each Defendant because, each
Defendant: (a) transacted business throughout the United States, including in this District; (b)
transacted in substantial amounts of the Relevant Securities throughout the United States; (c) had
substantial contacts with the United States, including this District; and/or (d) engaged in an
antitrust conspiracy that was directed at and had a direct, foreseeable, and intended effect of
causing injury to the business or property of persons residing in, located in, or doing business
throughout the United States, including in this District.
22. The activities of the Defendants and all co-conspirators—whether unnamed or as
of yet unknown—as described herein, were within the flow of, were intended to, and did have
direct, substantial, and reasonably foreseeable effects on the foreign and interstate commerce of
the United States.
PARTIES
A. Plaintiff Angel Guzman
23. Plaintiff Angel Guzman (“Guzman”) is a resident of the State of New York.
Guzman purchased shares of BlackBerry Ltd., GameStop Corp., and Nokia Corp. on Robinhood
and held said shares as of the close of market on January 27, 2021.
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24. On January 28, 2021, Guzman was prohibited from purchasing the Relevant
Securities on Robinhood due to the anticompetitive conduct alleged herein.
25. Consequently, on January 28, 2021, in an effort to purchase the Relevant
Securities, Guzman applied for an account with Charles Schwab (“Schwab”) because Schwab
was not prohibiting its customers from purchasing the Relevant Securities. Yet, on January 28,
2021, Guzman was unable to purchase any of the Relevant Securities on Schwab due to the
amount of time required to open the account.
26. From January 29, 2021 through February 4, 2021, Guzman was subject to the
trading limitations Robinhood imposed on certain of the Relevant Securities.
27. As a result of the anticompetitive conduct alleged herein, Guzman sold shares of
BlackBerry Ltd., GameStop Corp., and Nokia Corp. on Robinhood during the Class Period.
B. Plaintiff Burke Minahan
28. Plaintiff Burke Minahan (“Minahan”) is a resident of the State of Minnesota.
Minahan purchased shares of BlackBerry Ltd., GameStop Corp., and Nokia Corp. on Robinhood
and held said shares as of the close of market on January 27, 2021.
29. On January 28, 2021, Minahan was prohibited from purchasing the Relevant
Securities on Robinhood as a result of the anticompetitive conduct alleged herein.
30. Consequently, on January 28, 2021, in an effort to purchase the Relevant
Securities, Minahan applied for an account with Fidelity because Fidelity was not prohibiting its
customers from purchasing the Relevant Securities. Minahan was subsequently able to purchase
a share of GameStop Corp. on Fidelity that day.
31. From January 29, 2021 through February 4, 2021, Minahan was subject to the
trading limitations Robinhood imposed on certain of the Relevant Securities.
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32. As a result of the anticompetitive conduct described herein, Minahan sold shares
of BlackBerry Ltd., GameStop Corp. and Nokia Corp. on Robinhood during the Class Period.
C. Plaintiff Christopher Miller
33. Plaintiff Christopher Miller (“Miller”) is a resident of the State of Kansas. Miller
purchased shares of GameStop Corp. on Robinhood and held said shares as of the close of
market on January 27, 2021.
34. On January 28, 2021, Miller was prohibited from purchasing the Relevant
Securities on Robinhood due to the anticompetitive conduct described herein.
35. Consequently, on January 28, 2021, in an effort to purchase the Relevant
Securities, Miller applied to open accounts with Fidelity and TD Ameritrade (“TD”), because
these firms were not prohibiting their customers from purchasing the Relevant Securities. Yet, on
January 28, 2021, Miller was unable to purchase any of the Relevant Securities on Fidelity or TD
due to the amount of time required to setup the accounts.
36. From January 29, 2021 through February 4, 2021, Miller was subject to the
trading limitations Robinhood imposed on certain of the Relevant Securities.
37. As a result of the anticompetitive conduct alleged herein, Miller sold shares of
GameStop on Robinhood during the Class Period.
D. Plaintiff Terell Sterling
38. Plaintiff Terell Sterling (“Sterling”) is a resident of the State of California.
Sterling purchased shares of AMC Entertainment Holdings, Inc., BlackBerry Ltd., GameStop
Corp. on Robinhood and held said shares as of the close of market on January 27, 2021.
39. On January 28, 2021, Sterling was prohibited from purchasing the Relevant
Securities on Robinhood due to the anticompetitive conduct described herein.
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40. From January 29, 2021 through February 4, 2021, Sterling was subject to the
trading limitations Robinhood imposed on certain of the Relevant Securities.
41. As a further result of the anticompetitive conduct alleged herein, Sterling sold
shares of AMC Entertainment Holdings, Inc., BlackBerry Ltd. and GameStop Corp. on
Robinhood during the Class Period.
E. Introducing Brokerage Defendants
a. Defendant Ally Financial Inc.
42. Defendant Ally Financial Inc. (“Ally”) is a Delaware corporation, with its
headquarters located at Ally Detroit Center 500, Woodward Ave., Floor 10, Detroit, Michigan.
Ally provides financial services including an electronic trading platform to trade financial assets.
During the relevant period, Ally restricted and/or otherwise limited the ability of investors to
purchase the Relevant Securities. At all relevant times stated herein, Apex Clearing Corporation
served as Ally’s clearing firm.
b. Defendant Alpaca Securities LLC
43. Defendant Alpaca Securities LLC (“Alpaca”) is a Delaware limited liability
company, with its headquarters at 20 N. San Mateo Drive Suite 10, San Mateo, California.
Alpaca provides financial services including an electronic trading platform to trade financial
assets. During the relevant period, Alpaca restricted and/or otherwise limited the ability of
investors to purchase the Relevant Securities. At all relevant times stated herein, Electronic
Transaction Clearing served as Alpaca’s clearing firm.
c. Defendant Dough
44. Defendant Dough LLC (“Dough”) is a Delaware limited liability company and
wholly-owned subsidiary of Tastytrade, Inc., with its headquarters located at 327 N. Aberdeen
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Street, Chicago, Illinois. Dough provides financial services including an electronic trading
platform to trade financial assets. During the relevant period, Dough restricted and/or otherwise
limited the ability of investors to purchase the Relevant Securities. At all relevant times stated
herein, Apex Clearing Corporation served as Dough’s clearing firm.
d. Defendant Public.com
45. Defendant Open To The Public Investing, Inc. (“Public.com”) is a New York
corporation and wholly-owned subsidiary of Public Holdings Inc., headquartered at 1 State Street
Plaza, 10th Floor, New York, New York.
46. Public.com provides financial services including an electronic trading platform to
trade financial assets. During the relevant period, Public.com restricted and/or otherwise limited
the ability of investors to purchase the Relevant Securities. At all relevant times stated herein,
Apex Clearing Corporation served as Public.com’s clearing firm.
e. Defendant SoFi
47. Defendant SoFi Securities LLC (“SoFi”) is a New York limited liability company
headquartered at 234 1st Street, Building A, Suite 4700, San Francisco, California. SoFi provides
financial services including an electronic trading platform to trade financial assets. During the
relevant period, SoFi restricted and/or otherwise limited the ability of investors to purchase the
Relevant Securities. At all relevant times stated herein, Apex Clearing Corporation served as
SoFi’s clearing firm.
f. Defendant Tastyworks
48. Defendant Tastyworks, Inc. (“Tastyworks”) is a Delaware corporation and
wholly-owned subsidiary of Tastytrade, Inc., headquartered at 1000 West Fulton Market Street,
Suite 220, Chicago, Illinois.
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49. Tastyworks provides financial services including an electronic trading platform to
trade financial assets. During the relevant period, Tastyworks restricted and/or otherwise limited
the ability of investors to purchase the Relevant Securities. At all relevant times stated herein,
Apex Clearing Corporation served as Tastyworks clearing firm.
g. Defendant Webull
50. Defendant Webull Financial LLC (“Webull”) is a Delaware limited liability
company headquartered at 44 Wall Street, Ste. 501, New York, New York. Webull provides
financial services including an electronic trading platform to trade financial assets. During the
relevant period, Webull restricted and/or otherwise limited the ability of investors to purchase the
Relevant Securities. At all relevant times stated herein, Apex Clearing Corporation served as
Webull’s clearing firm.
F. Self-Clearing Brokerage Defendants
a. Defendant E*Trade
51. Defendant E*Trade Securities LLC is a Delaware limited liability company, with
its headquarters at 671 North Glebe Road, Ballston Tower, Arlington, Texas.
52. Defendant E*Trade Financial Holdings, LLC is a Delaware limited liability
company, with its headquarters at 671 North Glebe Road, Ballston Tower, Arlington, Texas.
53. During the relevant period, E*Trade restricted and/or otherwise limited the ability
of investors to purchase the Relevant Securities.
54. At all relevant times stated herein, E*Trade acted as a self-clearing broker.
b. Defendant Interactive Brokers
55. Defendant Interactive Brokers LLC (“Interactive Brokers”) is a Delaware limited
liability company headquartered at 1 Pickwick Plaza, Greenwich, Connecticut. Interactive
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Brokers provides financial services including an electronic trading platform to trade financial
assets. During the relevant period, Interactive Brokers restricted and/or otherwise limited the
ability of investors to purchase the Relevant Securities.
56. At all relevant times stated herein, Interactive Brokers acted as a self-clearing
broker.
c. Defendant Robinhood
57. Defendant Robinhood Markets, Inc. is a Delaware corporation with its principal
place of business at 85 Willow Road, Menlo Park, California. Defendant Robinhood Markets,
Inc. is the corporate parent of and manages, controls and directs the affairs of Defendants
Robinhood Financial LLC and Robinhood Securities, LLC.
58. Defendant Robinhood Financial LLC is a Delaware limited liability company
with its principal place of business at 85 Willow Road, Menlo Park, California. It is a wholly-
owned subsidiary of Robinhood Markets, Inc.
59. Robinhood Financial LLC provides financial services including an electronic
trading platform to trade financial assets.
60. Defendant Robinhood Securities, LLC is a Delaware limited liability company
with its principal place of business at 500 Colonial Center Parkway, Suite 100, Lake Mary,
Florida. It is a wholly owned subsidiary of Robinhood Markets, Inc.
61. Defendant Robinhood Securities, LLC, Robinhood Financial LLC and
Robinhood Markets, Inc. are collectively referred to herein as “Robinhood.”
62. During the relevant period, Robinhood restricted and/or otherwise limited the
ability of investors to purchase the Relevant Securities.
63. At all relevant times stated herein, Robinhood acted as a self-clearing broker.
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G. Market Maker Defendants
a. Defendant Citadel Securities
64. Defendant Citadel Securities LLC is a Delaware limited liability company,
headquartered at 131 South Dearborn Street, Chicago, Illinois.
65. Citadel Securities took short positions in the Relevant Securities. During the
relevant period, Citadel Securities actively participated in the conspiracy and the wrongful acts
alleged herein.
H. Clearing Defendants
a. Defendant Apex
66. Defendant Apex Clearing Corporation (“Apex”) is a New York corporation
headquartered at One Dallas Center, 350 N. St. Paul, Suite 1300, Dallas, Texas.
67. Apex Clearing Holdings LLC and PEAK Investments LLC are the parent
corporations of Apex.
68. During the relevant period, Defendant Apex participated in the conspiracy and the
wrongful acts alleged herein.
b. Defendant ETC
69. Defendant Electronic Transaction Clearing, Inc. (“ETC”) is a Delaware
Corporation located at 660 South Figueroa Street, Suite 1450, Los Angeles, California.
70. Apex Clearing Holdings LLC and PEAK Investments LLC are the parent
corporations of ETC.
71. During the relevant period, Defendant ETC participated in the conspiracy and the
wrongful acts alleged herein.
c. Defendant PEAK 6
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72. Defendant PEAK6 Investments LLC (“PEAK6”) is a Delaware limited liability
company located at 141 West Jackson Boulevard, Suite 500, Chicago, IL 60640.
73. During the relevant period, PEAK6 is the parent corporation of Apex and ETC.
74. PEAK6 exercised direction and control over Defendants Apex and ETC during
the Relevant Period.
75. During the relevant period, Defendant PEAK6 participated in the conspiracy and
the wrongful acts alleged herein.
AGENTS AND CO-CONSPIRATORS
76. The anticompetitive and unlawful acts alleged against the Defendants in this class
action complaint were authorized, ordered or performed by the Defendants’ respective officers,
agents, employees, representatives, or shareholders while actively engaged in the management,
direction, or control of the Defendants’ businesses or affairs. The respective Defendant parent
entities identified herein exercise dominance and control over all of their respective Defendant
subsidiary entities and those respective subsidiaries have a unity of purpose and interest with
their respective parents.
77. To the extent any respective parent Defendant did not keep a tight rein on its
respective subsidiary Defendant(s), it had the power to assert control over the subsidiary if the
latter failed to act in the parent’s best interest. The respective parent Defendants and their
respective subsidiaries, affiliates and agents thus operated as a single unified entity.
78. The Defendants’ agents operated under the explicit and apparent authority of their
principals.
79. Various persons and/or firms not named as Defendants herein may have
participated as co-conspirators in the violations alleged herein and may have performed acts and
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made statements in furtherance thereof.
80. Each Defendant acted as the principal, agent, or joint venture of, or for other
Defendants with respect to the acts, violations, and common course of conduct alleged herein.
CLASS ALLEGATIONS
81. Plaintiffs bring this action for damages on behalf of themselves and all others
similarly situated as a class action pursuant to Rules 23(a), (b)(2) and (b)(3) of the Federal Rules
of Civil Procedure, on behalf of the following Class:
All persons or entities in the United States that held shares of stock or call options in
GameStop Corp. (GME), AMC Entertainment Holdings Inc. (AMC), Bed Bath &
Beyond Inc. (BBBY), BlackBerry Ltd. (BB), Express, Inc. (EXPR), Koss Corporation
(KOSS), Nokia Corp. (NOK), Tootsie Roll Industries, Inc. (TR), or Trivago N.V. (TRVG)
as of the close of market on January 27, 2021, and sold the above-listed securities from
January 28, 2021 up to and including February 4, 2021 (the “Class Period”).
82. This Class definition specifically excludes the following person or entities:
a. any of the Defendants named herein;
b. any of the Defendants’ co-conspirators;
c. any of Defendants’ parent companies, subsidiaries, and affiliates;
d. any of Defendants’ officers, directors, management, employees, or agents;
e. all governmental entities; and
f. the judges and chambers staff in this case, as well as any members of their
immediate families.
83. Plaintiffs do not know the exact number of Class members, because such
information is in the exclusive control of Defendants. Plaintiffs are informed and believe that,
due to the nature of the trade and commerce involved, there are millions of Class members
geographically dispersed throughout the United States and elsewhere, such that joinder of all
Class members in the prosecution of this action is impracticable.
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84. Plaintiffs’ claims are typical of the claims of their fellow Class members because
Plaintiffs and all Class members were damaged by the same wrongful conduct of Defendants as
alleged herein, and the relief sought herein is common to all members of the Class.
85. Plaintiffs will fairly and adequately represent the interests of the Class. Plaintiffs
have no conflicts with any other members of the Class. Furthermore, Plaintiffs have retained
sophisticated and competent counsel who is experienced in prosecuting antitrust class actions, as
well as other complex litigation.
86. Numerous questions of law or fact common to the entire Class—including, but
not limited to those identified below—arise from Defendants’ anticompetitive and unlawful
conduct:
a. whether Defendants combined or conspired with one another to artificially
suppress prices for the Relevant Securities at any time during the Class Period to
shareholders of the Relevant Securities in the United States;
b. whether Defendants combined or conspired with one another to fix, raise,
maintain, stabilize and/or suppress prices for Relevant Securities at any time
during the Class Period to shareholders of the Relevant Securities in the United
States;
c. whether Defendants’ conduct caused the prices of the Relevant Securities, sold or
held by the Retail Investors in the United States at any time during the Class
Period to be artificially fixed, suppressed, maintained or stabilized; and
d. whether Plaintiffs and the other members of the Class were injured by
Defendants’ conduct and, if so, the appropriate Class-wide measure of damages.
87. These and other questions of law and fact are common to the Class and
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predominate over any questions affecting the Class members individually.
88. Defendants have acted on grounds generally applicable to the Class. This class
action is superior to alternatives, if any, for the fair and efficient adjudication of this controversy.
Prosecuting the claims pleaded herein as a class action will eliminate the possibility of repetitive
litigation. There will be no material difficulty in the management of this action as a class action.
89. The prosecution of separate actions by individual Class members would create
the risk of inconsistent or varying adjudications, establishing incompatible standards of conduct
for Defendants.
FACTUAL ALLEGATIONS
90. Many of the Retail Investors regularly participate in online financial discussion
forums, including but not limited to Reddit, Facebook, and TikTok. Through these forums, and
elsewhere, Retail Investors are able to share information about their market observations and
help fellow members of these online forums to benefit from their research. During the Relevant
Period, Retail Investors communicated and exchanged information regarding the Relevant
Securities, among other things.
91. Based on their research, the Retail Investors, through SEC registered broker-
dealers, such as the Brokerage Defendants, purchased the Relevant Securities.
92. The Market Maker Defendants, hedge funds, and unnamed co-conspirators
established “short” positions in the Relevant Securities. By the nature of the developed short
positions, the Market Maker Defendants, hedge funds, Clearing Defendants, and certain
unnamed co-conspirators, stood to benefit and substantially profit were the prices of the Relevant
Securities to decrease. Entering into short positions is highly speculative. In a free and open
market, there would be substantial financial risk that prices might increase causing traders with
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short positions to experience losses.
93. The Market Maker Defendants, hedge funds, Clearing Defendants, and unnamed
co-conspirators found themselves poorly positioned for the rise in Relevant Securities prices that
occurred in late January 2021. As Relevant Securities increased in price, Market Maker
Defendants were exposed to billions of dollars in losses, exposing the Clearing Defendants to
increased collateral requirements if Robinhood were to fail.
94. Rather than facing the consequences of their exposure to rising Relevant
Securities’ prices, the Market Maker Defendants, Clearing Defendants, Brokerage Defendants
and their co-conspirators entered into an anticompetitive scheme to prevent the market from
operating freely, to halt the significant increase in the prices of the Relevant Securities, to avoid
their own financial losses and reduced profits, and to cause financial losses to Plaintiffs and the
members of the Class.
Role of Participants
95. There are numerous participants in the securities market who serve different
roles. A brief explanation of some of these players and their roles is below.
The Depository Trust & Clearing Corporation
96. The Depository Trust & Clearing Corp. (“DTCC”) is a holding company that
owns and operates three clearing agencies that are registered with the U.S. Securities and
Exchange Commission (“SEC”) under the Securities and Exchange Act of 1934: National
Securities Clearing Corp. (“NSCC”), Fixed Income Clearing Corporation (“FICC”) and The
Depository Trust Company (“DTC”).
97. The DTCC is a member owned and governed entity. Its members include, among
others, Clearing Defendants Apex and ETC, as well as Brokerage Defendants E*Trade,
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Interactive Brokers, and Robinhood.
98. NSCC is the central counterparty (CCP) that clears cash transactions in the U.S.
equities markets, netting securities deliveries and payments among NSCC’s clearing members
and guaranteeing completion of trades even if one party to the transaction defaults.
99. On May 6, 2021, Michael C. Bodson (“Bodson”), the CEO of the DTCC, testified
before the U.S. House Committee on Financial Services and explained that:
The U.S. Markets are multi-layered, and customers generally execute
trades through one or more brokers or broker-dealers. NSCC direct
clearing members are responsible for completing their customers’
trades at the NSCC. NSCC’s rules outline clear financial and
operation risk management obligations that apply to direct clearing
members.
100. When an investor purchases a security, the transaction is not instantaneous, and
instead takes time to settle and clear.
101. Once the trade is executed, the trade information is relayed to the NSCC for
clearing services. Securities trades submitted to the NSCC settle at the end of the second
business day after submission, in what is known as T+2 settlement. This means that when an
investor executes into a trade on a Monday, the cash and the securities related to that trade are
electronically transferred on Wednesday.
102. The NSCC’s stated purpose is to reduce the cost, settlement risk, and operational
risk of clearing and settling multiple transactions among multiple parties. Between trade
submission and settlement, NSCC guarantees all cleared trades among its members. If a clearing
member defaults on its settlement obligations, NSCC guarantees the delivery of cash and
securities to its non-defaulting members.
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103. As explained by Bodson in his Congressional testimony, margin protects NSCC
and all market participants against clearing member defaults, and margin requirements must be
met by clearing members on a timely basis. NSCC’s margin requirements are rules-based and
subject to regulatory review and approval. The NSCC collects clearing fund contributions, or
margin, at the start of each day and intraday in volatile markets. According to Bodson, the rules
for calculating on the contribution requirements and the timing of collection of these margin
requirements are known to every member. Furthermore, according to Bodson, NSCC provides
reporting tools, calculators and documentation that allow clearing members to monitor their risk
in near real-time and estimate clearing fund contribution requirements. Bodson indicated that
many clearing members have employed this information to build their own internal calculators
and monitoring tools to aid them in risk management.
104. The internal communications at Robinhood over the period demonstrate that
Robinhood’s staff did not use these tools in a proactive manner to anticipate the events of
January 28, nor was there a consistent practice of tracking concentration levels relative to margin
requirements. Robinhood did not utilize NSCC tools to conduct routine and rigorous risk
assessment and scenario analysis of the Relevant Securities despite the significant role
Robinhood played in providing services to traders that actively traded such securities.
Independent Clearing Firms
105. An independent clearing firm handles the back-office details of securities
transactions for broker-dealers (i.e., introducing brokers). An independent clearing firm executes
and settles orders and maintains custody of securities and other assets. Essentially, the
independent clearing firm handles the back-office operations behind making securities trades
actually happen once a trade is submitted by an investor on an introducing broker’s website
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and/or application. Independent clearing firms are also responsible for maintaining the
paperwork associated with the clearing and executing of a transaction.
106. Independent clearing firms have several revenue streams. Independent clearing
firms receive interest on uninvested user cash. Additionally, independent clearing firms generate
revenue by lending the stock owned by individual investors to other traders. When one broker or
dealer lends securities to another, the borrower pays collateral slightly higher than their market
value along with a fee. Both of these streams represent revenue-generating opportunities for the
independent clearing firms.
107. As described below, independent clearing firms also generate a significant
portion of their revenue from payment for order flow.
108. Apex and ETC are independent clearing firms. Operating independently, each of
these firms is supervised by the Financial Industry Regulatory Authority (“FINRA”) and each
serve as clearing agents for introducing brokers that do not have clearing capacity on their own.
109. Apex serves as the independent clearing firm for Ally, Dough, Public.com, Sofi,
Stash, Tastyworks and Webull, while ETC serves as the clearing firm for Alpaca.
110. Independent clearing firms, including Apex and ETC, are members of the DTCC
and therefore subject to its rules and regulations.
Introducing Brokers
111. An introducing broker is a broker-dealer that contracts with an independent
clearing firm to handle the execution and settlement of orders that the introducing firm receives
from its clients or its own trading desk to buy and sell securities. The introducing broker’s
independent clearing firm, not the introducing broker, receives payments and maintains custody
of the securities.
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112. Ally, Alpaca, Dough, Public.com, Sofi, Stash, Tastyworks and Webull are all
introducing brokers.
Self-Clearing Brokers
113. A self-clearing broker is likewise an introducing broker, but in addition to
handling orders to buy and sell securities, a self-clearing broker also acts as its own clearing firm
in that it executes and settles orders and maintains custody of securities and other assets. Self-
clearing brokers are also responsible for maintaining the paperwork associated with the clearing
and executing of a transaction.
114. Robinhood began as an introducing broker, clearing customer assets through
Apex. As customer growth surged, Robinhood announced in 2018 that it received regulatory
approval to become a self-clearing broker and did so.
115. Other self-clearing brokers include E*Trade and Interactive Brokers, and non-
defendants Fidelity and Vanguard.
116. Each self-clearing broker is a member of the DTCC and therefore subject to its
rules and regulations.
117. Under Rule 15c3-l, a broker-dealer is required to “at all times have and maintain
net capital” no less than the greatest of the minimum requirement applicable to its business. The
rule is designed to require a broker-dealer to maintain sufficient liquid assets to meet all
obligations to customers and counterparties and have adequate additional resources to wind
down its business in an orderly manner without the need for a formal proceeding if the firm fails
financially. All broker-dealers have the ability, using the NSCC’s reporting tools, calculators and
documentation and internally developed calculators and monitoring tools, to inform themselves
in real time of their anticipated daily DTCC deposit requirements.
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Market Makers
118. Market makers are market participants who provide bid prices (i.e., the price
investors are willing to purchase at) and ask prices (i.e., the price investors are willing to sell at)
for securities. The difference between the two is known as the “spread.” Market makers maintain
an inventory of securities from their own trading and match incoming buy and sell orders in
order to fill those orders. Once an order is filled, the spread is pocketed by the market maker as
profit. These spreads can be very small (e.g., under even a penny per transaction) but becomes
significant due to the very large volume of orders filled.
119. Market makers are typically large financial technological firms that rely on
sophisticated software and algorithms.
120. Many market makers are now entirely automated and are high-frequency trading
(“HFT”) firms. HFT firms are computerized and rely on software and data access to connect with
markets with minimal latency or delay. Low latency, or a relatively short time that elapses from
the moment a signal is sent to its receipt, is important for HFT market makers as it permits
arbitrage strategies. Price differences in the bid and offer prices of a security may fluctuate in
milliseconds, so latency is crucial for a HFT to quickly react in order to maximize potential
profits. Citadel Securities is an example of one of these firms.
121. Market makers may also make trades for their own accounts.
122. Orders placed through brokerages may be routed to a market maker for
execution.
123. A market maker may execute an order routed to it by broker by taking the other
side of the transaction, a process known as “internalization.”
124. For example, if a market maker receives an order to buy a certain security, it may
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route that order to an exchange or it may execute the orders off-exchange in its capacity as a
dealer by transacting against the buy orders with contra-side sell order, either from its own
inventory or by selling the security short.
How an Order is Executed
125. Each of the players may play a role in how an order is executed.
126. If a Retail Investor places a buy order through a retail broker—such as the
Introducing Brokerage Defendants or the Self-Clearing Brokerage Defendants—the retail broker
might route the order through its Smart Order Router (“SOR”) to execute the trade on one or
more securities exchanges and other trading destinations where it is authorized to execute orders
and where it deems it can meet its fiduciary duty of best execution.
127. If a retail broker has not invested in the technology, connectivity, and
memberships required to effectively route orders through a SOR that can satisfy its duty of best
execution, the retail broker typically routes to an executing broker that can provide the smart
order routing services, such as Citadel Execution Services or G1 Execution Services.
128. Often the executing broker will operate an off-exchange market maker unit that is
provided preferential access to the retail broker’s orders and executes a significant percentage of
such orders for its own “book” as a dealer instead of routing the order to any exchange or trading
destination. Often the market maker unit provides the retail broker with payment-for-order-flow
to compensate the retail broker for providing it preferential access to the retail broker’s order.
Furthermore, such arrangements typically do not charge the retail broker execution fees for
orders directed to the market maker unit.
129. After a Self-Clearing Brokerage’s order is executed, the Self-Clearing Brokerage
will send the details of the execution to the DTCC-affiliated clearinghouse entity (e.g., the
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NSCC) for clearinghouse and settling services. If, instead, the Introducing Brokerage does not
self-clear, the Introducing Brokerage would instead route the details of the execution to an
independent clearing firm such as Apex who would then send such details to the DTCC-affiliated
entity for clearinghouse services.
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Background
130. As reported in the Financial Times, among other sources, Retail Investors’ market
share of U.S. equity trading has steadily increased since 2019.
131. Credit Suisse estimated that at various times in 2021, Retail Investors accounted
for a third of all U.S. stock market trading.
132. Retail Investors execute their personal trades through brokerage firms, such as the
Brokerage Defendants that run online platforms from which Plaintiffs and other Retail Investors
are able to buy and sell securities.
133. Due to their smaller trades, Retail Investors have traditionally paid higher fees
and commissions. Many of the Brokerage Defendants, including Robinhood, represent to Retail
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Investors that they offer “commission-free” brokerage services to facilitate fair trading in the
stock market. While these brokerages hold themselves out as free, the consumer incurs costs in
other ways besides paying commissions. For example, while Robinhood users do not pay trade
commissions, they pay a hidden price with each trade in the form of higher transaction costs as
Robinhood earns revenue through rebates, kickbacks and other payments from market makers
like Citadel Securities who compensate Robinhood for preferential access to Robinhood’s order
flow.
134. When a Robinhood user executes a trade, the order is typically executed by an
off-exchange market maker instead of being directly routed to a national securities exchange.
Robinhood’s practice of selling its users’ orders to third parties is known as selling “order flow,”
and Robinhood derives the majority of its profit from this practice. In Robinhood’s Form S-1
dated July 1, 2021, Robinhood states “[b]ecause a majority of [Robinhood’s] revenue is
transaction-based (including payment for order flow, or “PFOF”), reduced spreads in securities
pricing, reduced levels of trading activity generally, changes in our business relationships with
market makers and any new regulation of, or any bans on, PFOF and similar practices may result
in reduced profitability, increased compliance costs and expanded potential for negative
publicity.” Robinhood’s Form S1 is available at:
https://www.sec.gov/Archives/edgar/data/1783879/000162828021013318/robinhoods-1.htm.
135. For example, if a Retail Investor purchases a share of stock through Robinhood,
Robinhood sends the order to a large market maker like Citadel Securities and receives payment
in return—i.e., the “payment for order flow” fees. Citadel Securities, meanwhile, makes money
itself by executing an offsetting trade at a more favorable price than it transacted for the
Robinhood user’s purchase, a practice known as “capturing the spread.” While the profit may be
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relatively small for an individual trade, the sheer number of trades sum to a significant value.
Citadel Securities is Robinhood’s largest counterparty. In 2019, 29% of Robinhood’s revenue
derived from transactions with Citadel Securities. For 2020, 34% of Robinhood’s revenue
derived from transactions with Citadel Securities. Below is an excerpt from Robinhood’s Form
S-1, where it details its revenues from market makers in “excess of 10% of total revenues”:
136. For Robinhood, the payment-for-order-flow compensation is a materially
significant component of its revenue, with the mechanism of payment-for-order-flow effectively
operating as a profit-sharing mechanism through which Citadel Securities compensates
Robinhood for its order flow with profits extracted from such order flow by its market maker.
137. The SEC requires broker dealers to disclose how their customers’ orders are
handled, including reporting the entities that handle their order flow, in what are known as Rule
606 disclosures.
138. Robinhood is not the only Defendant that sells order flow.
139. Based upon Apex’s SEC Rule 606 filing, Apex directed order flow for 99.99% of
all its “non-directed orders” in January 2021 for S&P 500 stocks and non-S&P 500 stocks.
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140. Apex sent 23.26% of all “non-directed” order flow to Citadel Securities in S&P
500 stocks and 13.26% of all “non-directed” order flow for non-S&P500 stocks to Citadel
Securities in January 2021.
141. As mentioned above, Retail Investors exchange investment information via
online discussion forums. Through these forums, as early as 2019, the Retail Investors developed
the trading hypothesis that shares of GameStop’s (GME) stock were trading at lower prices than
they should be based on GameStop’s publicly available financial disclosures and future
prospects.
142. GameStop for example, despite being a brick-and-mortar store specializing in
video games that can now be downloaded from a person’s home, possessed ample cash reserves,
was regularly paying off its debts and was presented new opportunity with the release of the next
generation of gaming platforms. Despite this, in 2019, shares of GameStop’s stock were trading
as low as $3 per share. Some Retail Investors correctly deduced that GameStop was undervalued
for a variety of reasons that included the observation that large financial institutions had taken
large short positions that resulted in levels of short-interest that would bear significant costs if
the outlook on GameStop improved and the short positions had to be exited. This was essentially
a bet on GameStop’s failure by institutional investors that were significantly exposed to a
potential “short squeeze” that could drive the stock sharply higher if the price of GameStop was
challenged by any significant buying activity by well-capitalized market participants. Due to
GameStop’s low share price and the belief that short-sellers were pressuring GameStop in a
manner that maintained the stock at an artificially low price, these Retailer Investors determined
GameStop represented a good investment opportunity.
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143. In addition to GameStop, Retail Investors invested in the other Relevant
Securities based on their own valuations and anticipated business performance.
144. For example, Retail Investors invested in Nokia (NOK) because Nokia, which
had historically focused its business on the manufacture and sale of mobile phone handsets, had
been expanding in other industries, including investing in 5G communication networks,
including towers and other infrastructure.
145. Like other Retail Investors, Plaintiffs purchased “long” positions in the Relevant
Securities.
146. In a free and open market, stock prices are determined by supply and demand and
other market forces. Ordinarily, as more investors buy a certain stock, they tend to bid up the
stock’s price, and the market price for the stock rises. Conversely, as investors sell stock, the
stock price is bid down and the market price for the stock declines.
147. If an investor has long positions, it means that the investor has bought and owns
those shares of stocks (in contrast to a short position, where the investor owes those stocks to
someone, but does not actually own them yet). Investors holding long positions generally own
the stock with the expectation that it will rise in value and it will be worth more than they paid
for it. When the investor sells a long position, the profit or loss from the sale is the difference
between the purchase price of the security and the sale price of the security.
148. Retail Investors took long positions in the Relevant Securities with the
expectation that the stock would increase in value, generally because they believed that the
respective companies’ business prospects were improving. Investors in the Relevant Securities
generally believed they were good investment opportunities, and that prices of their securities
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would rise as can be expected when a market is operating freely, without fraud, conspiracy or
manipulation.
149. Retail Investors have limited access to the stock market. Generally, Retail
Investors must invest in the stock market through intermediaries such as the Brokerage
Defendants.
150. Institutional investors on the other hand have considerably greater access to the
stock market. They can invest directly, and those that are broker-dealers do not need to use other
brokerages to execute their trades in securities.
151. Institutional investors also can trade on private stock exchanges that members of
the public cannot access. These exchanges are known colloquially as “dark pools” or “dark
exchanges” because of their lack of transparency and because they do not disseminate public
quotations of securities prices.
152. Similarly, as market makers internalize trades they do so within their own dark
trading operations, which are not accessible to the broader market.
153. Dark pools, which account for 40% of all U.S. stock trades, are vastly different
from traditional or “lit” stock exchanges such as the New York Stock Exchange or NASDAQ. In
a lit exchange, the order book including the price and amount an investor wants to trade is public
and visible to all participants. Dark pools on the other hand do not display publicly how much an
investor wants to buy or at what price. Stock purchased in a lit exchange can be sold on a dark
exchange, and stock purchased in a dark exchange can be sold in a lit exchange.
154. While institutional investors can trade on both dark and lit exchanges, many
prefer dark pools over “lit” exchanges because they can discreetly buy or sell securities in large
blocks, even in the millions, while mitigating some of the price impact their buying or selling
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activity would otherwise have if they transacted on the “lit” national securities exchanges. Dark
pools permit institutional investors to trade without visible exposure of their order to the market
as a whole until after the trade has been executed. Furthermore, dark pools typically offer lower
execution fees than national securities exchanges and may provide some access to retail order
flow that market making units have decided not to internalize.
155. Institutional investors, including the hedge funds and unnamed co-conspirators,
acquired massive “short” positions in the Relevant Securities.
156. As indicated above, “short” sellers essentially bet on an asset’s failure rather than
its success. Short sellers borrow shares of a company that they believe will reduce in price, in the
hope that once the share price falls, they might be able to buy the shares at a reduced price and
return them to the lender. They pocket the difference. A short seller’s profit is the share value lost
at the time a short seller “buys” a security versus the time when the short seller “borrows” the
security. For example, a short seller might sell a share of a stock in Company X for $10 and then
borrow a share of Company X (for a fee) from a broker for $10. The short seller immediately
sells the share and hopes that the value of the share will drop. The share price then falls to $4.
The short seller then purchases the share at the reduced value of $4 and returns it to the lender
and earns the difference of $6 (less the fees incurred in borrowing the share). On the other hand,
if the price of the share rises to $20, the short seller would need to purchase the share at $20 to
return it to the lender, thereby incurring a loss of $10 on top of any fees incurred.
157. The more a stock price increases, the greater the loss to the short seller. The
theoretical loss to a short investor who predicts wrongly is potentially infinite because there is no
upper boundary on the price to which a company’s share price can rise. Should a short seller
want to exit a short position in the face of rapidly increasing stock price, they must “buy back”
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the stock at the higher price to return to the institution they borrowed the share from. Risk from
bad short selling investments is potentially catastrophic.
158. On the other hand, the loss to an investor who purchases a stock “long” is limited
to the difference between the amount paid for the shares and the lowest price to which the stock
can fall, which, of course, is zero.
159. As reported by the financial analytics firm S3, on January 4, 2021, GameStop’s
peak short interest was 141.8% of its float (i.e., publicly tradable shares), which indicates that
some short sellers were selling shares without either owning them or identifying an owner from
whom shares could be borrowed. The practice of short selling without identifying a source from
which they can be borrowed is an illegal practice known as “naked shorting.” In a “naked” short
sale, a seller does not borrow or arrange to borrow the necessary securities in time to deliver
them to the buyer within the standard two-day settlement period.
160. Naked short selling is illegal pursuant to SEC Regulation SHO, which requires
broker-dealers “to identify a source of borrowable stock before executing a short sale in any
equity security with the goal of reducing the number of situations where stock is unavailable for
settlement.” The regulation is available at: https://www.sec.gov/investor/pubs/regsho.htm.
Sometimes, however, the stock being borrowed may not be available from the lender at the time
of settlement, possibly resulting in a fail to deliver.
161. Regulation SHO also requires firms that clear and settle trades to take action to
close out failures to deliver by borrowing or purchasing securities of like kind and quantity. For
short sale transactions, failures to deliver must be closed out by no later than the beginning of
regular trading hours on the settlement day following the settlement date, referred to as T+4. For
long sale transactions or bona fide market making activities, failures to deliver must be closed
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out by no later than the beginning of regular trading hours on the third settlement day following
the settlement date, referred to as T+6.
162. As a result of Retail Investors building long positions in the Relevant Securities,
by both buying stock in the Relevant Securities and buying “out of the money” call options in the
Relevant Securities that had “strike prices” well above the prices that the Relevant Securities
were then trading at, the stock price of these companies began to rise. As the value of the
Relevant Securities increased, this resulted in both a “short squeeze” and a “gamma squeeze.”
163. As explained above, a short squeeze occurs when a stock or other asset rises
sharply in value, distressing short positions in the asset. A short squeeze therefore is when
investors in short positions are faced with a rapid increase in the shorted asset’s value, exposing
the short seller to increased loss. As the price of the asset rises, short sellers may face pressure to
buy back shares of stock to exit their short positions to mitigate their losses. In the absence of
market manipulation or some other intervention, as short sellers exit their short positions by
buying shares of stock to cover their short positions, the purchase of those shares further
increases the price of the stock.
164. There is another phenomenon known as a “gamma squeeze” involving a
derivative financial vehicle known as an option or an option contract.
165. “Options” are derivative financial instruments based on the value of an
underlying security. An option contract offers the buyer the opportunity, but not the obligation, to
buy or sell the underlying asset depending on the type of option contract.
166. “Call options” give the holder the right to buy the asset at a stated fixed price
within a specific timeframe. “Put options” on the other hand give the holder the right to sell the
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asset at the stated fixed price within a specific timeframe. The fixed price at which the options
holder may exercise the option is known as the “strike price.”
167. The holder of an option contract is not required to buy or sell the asset if they
choose not to.
168. An option is “in the money” (ITM) if the option has a strike price that is
favorable in comparison to the prevailing market price for the asset. For example, a call option is
in the money if the option holder has the right to exercise the option to buy the underlying asset
below its current market price. An ITM put option means the option holder can sell the security
above the current market price.
169. Conversely, an “out of the money” (OTM) option has a strike price unfavorable
in comparison to the market price for the underlying asset. For example, an OTM call option
means the underlying asset’s current market price is below the strike price of the call. An option
is “at the money” if the strike price equals the underlying asset price.
170. Options are priced based on a variety of risk variables known colloquially as the
“Greeks” as they are represented by letters of the Greek alphabet.
171. “Delta” represents the rate of change between an option’s price a small change in
the price of the underlying asset, i.e., the price sensitivity of the option with respect to the asset.
The units of Delta can be normalized to the range -1 to +1, reflecting a one-dollar change in the
underlying asset price. The Delta of a call option ranges from 0 to 1, whereas the Delta of a put
option ranges from 0 to -1. A call option with a Delta of 0.10 therefore will increase by 10 cents
for every one dollar the price of the underlying asset rises, absent any other changes.
172. “Gamma” represents the rate of change between an option’s Delta and the
underlying price. The units of Gamma can be normalized to reflect the amount the Delta would
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change given a one-dollar move in the price of the underlying asset. For example, if a call option
has a Gamma of 0.10, if the price of the underlying asset increases by one dollar, then the
option’s Delta will increase by 0.10, absent any other changes.
173. An option that is deep out of the money or deep in the money has a small
Gamma, whereas options that are at or near the money will have larger Gamma.
174. For at and around the money options, Gamma typically increases as the
expiration date of the option approaches.
175. Market makers also attempt to reduce risk by hedging. A market maker typically
hedges by looking at the Delta and buying or selling short an appropriate amount of stock to
offset the option. For example, if a market maker sells a call option, then the market maker may
hedge with long positions in the underlying security.
176. Similar to a short squeeze, a Gamma Squeeze occurs when a security experiences
a sharp price increase. For example, consider when the price of an underlying security rises up
towards the direction of the strike prices of deep out of the money options. When such an
increase occurs, options that were previously unlikely to reach their strike prices before
expiration see a rapid increase in values as it becomes more likely that the options will reach
their strike prices.
177. At the same time, the options’ sensitivity to the price increases, i.e., the Delta,
also increases due to the options’ Gamma. The Gamma also increases as the option approaches
being in the money.
178. As the Gamma increases, market makers hedge by purchasing more of the
underlying security, further driving the price of the security higher. As the price goes higher,
more deep out of the money options either go in the money or approach their strike price,
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creating a feedback loop that rapidly increases the price of the underlying security, which then
moves more out of the money options towards at the money or above.
179. With regard to GameStop, a popular Reddit user who also creates content on
YouTube under the handle Roaring Kitty (“Roaring Kitty”) had reason to believe that hedge
funds had entered into these short positions with respect to GameStop’s stock. Based on his own
financial analysis, Roaring Kitty determined that GameStop was actually undervalued due to a
range of factors, including that there had been extensive shorting of GameStop by numerous
funds, and made an initial purchase of $50,000 of GameStop stock and published his investments
on the Reddit financial discussion forum WallStreetBets.
180. WallStreetBets is a financial discussion forum on Reddit. WallStreetBets is
characterized by a particular culture centered around discussion of financial investments and
memes. Many users on WallStreetBets are sophisticated, financially savvy Retail Investors with
business acumen.
181. Roaring Kitty regularly updated and continued to publish information and
analysis that GameStop stock was undervalued. In August 2020, Roaring Kitty posted an in-
depth analysis of GameStop’s stock on his YouTube channel, walking his subscribers through his
extensive analysis of the value proposition of the stock.
182. Attention to GameStop’s stock was not limited to online financial communities
and discussion forums. Dr. Michael Burry (who gained fame for his investment decisions and for
correctly predicting the 2008 financial crisis as depicted in the film The Big Short) and his
investment firm Scion Asset Management, LLC spent nearly $15 million to purchase stock in
GameStop in 2019 at share prices between $2 and $4.20 per share for a 5% ownership position.
GameStop’s share price steadily increased and Retail Investors took notice.
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183. Ryan Cohen, the co-founder and former CEO of the pet e-commerce website
Chewy.com, invested $76 million and acquired a 12.9% stake in GameStop in 2020. Several
Retail Investors were optimistic about Ryan Cohen’s involvement in GameStop, who joined the
board of directors on January 11, 2021.
184. Institutional investors, holding large short positions in GameStop and the other
Relevant Securities began to push back by asserting that the Relevant Securities were not as
valuable as the Retail Investors thought. For example, on January 21, 2021, when GameStop was
valued at approximately $20 per share, Andrew Left, the founder of Citron Research, a capital
research and investment firm, gave an interview explaining why he was shorting GameStop,
calling the Retail Investors “the suckers at this poker game.”
185. In response, Retail Investors continued to build long positions and call options in
GameStop and the other Relevant Securities. Given the operation of a free and open market,
GameStop and other Relevant Securities were bid up and share prices increased. GameStop, for
example, jumped 78.46% from $43.03 per share on January 21, 2021, to $76.79 per share on
January 25, 2021. This massive price increase exposed the short sellers of the Relevant
Securities, including the Market Maker Defendants, to very substantial loses. It was a textbook
short squeeze.
186. The tremendous growth in the Relevant Securities’ stock price resulted in
significant and potentially disastrous exposure of institutional investors, and hedge funds,
holding short positions in the Relevant Securities.
187. On January 25, 2021, Citadel LLC injected around $3 billion along with another
fund, Steven Cohen’s Point72 Asset Management (“Point72”), to bailout Melvin Capital from its
distressed short position. Notably, Melvin Capital’s founder and CEO, Gabe Plotkin, began his
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career at Citadel before becoming a top portfolio manager at Point72’s predecessor firm, SAC
Capital Management.
188. The following day, January 26, 2021, GameStop’s share price continued to surge
after Social Capital’s Chamath Palihapitiya tweeted that he bought GameStop call options,
betting the share price would go higher. GameStop closed at $147.98, up 92.7% from the
previous day’s close.
189. Also on January 26, 2021, Tesla CEO Elon Musk (“Musk”) rallied behind
GameStop’s epic price surge, tweeting “Gamestonk!!” along with a link to the WallStreetBets
Reddit page. Shares of GameStop were up more than 60% in after-hours trading following
Musk’s tweet.
190. On January 27, 2021, the price of the Relevant Securities soared as trading
volumes in U.S. cash equities and options hit an all-time record level at 24.5 billion shares traded
and 57.1 million contracts traded. GME’s stock price peaked at $380.00, before reaching a
closing high of $347.51, a 134.84% increase from the previous day. Other Relevant Securities
experienced similar surges. AMC’s share price skyrocketed over 300% and EXPR’s rose over
200%.
191. Concurrently, Retail Investors were buying deep out of the money call options in
the weeks leading up to January 28, 2021 based on their beliefs that the Relevant Securities were
unfairly valued below their true value.
192. Market makers including Citadel Securities took the other side of these
transactions, developing large short positions.
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193. As the price of the Relevant Securities increased, the Delta and Gamma of the
previously deep out of the money call options purchased by Retail Investors came closer to their
strike price, further increasing the price of the Relevant Securities.
194. Additionally, January 29, 2021 was an expiry date for options. As the expiration
date for options approaches, the Gamma generally increases, further compounding the effects the
price increases of the Relevant Securities had on the Delta and Gamma of the Retail Investors’
call options.
195. Similarly, as retail orders for the Relevant Securities were routed to the market
makers, the market makers such as Citadel Securities took the other side of those buy orders, i.e.,
improvidently short selling the security to execute the order by filling buy orders without owning
the securities being purchased.
196. Further, as market makers such as Citadel Securities took the other side of the
incoming call option and security purchases from Retail Investors, they built up significant short
positions in the Relevant Securities.
197. As set forth above, the more a stock price increases, the greater the potential loss
for the short seller. This culmination of events (i.e., the short-squeeze) triggered the Brokerage
Defendants to place unprecedented trading restrictions on the Relevant Securities. In the case of
the clearing brokers, the restrictions prevented the risk of liability for a potential clearing
member default, and were likely in response to pressure from other market participants who
stood to benefit from a decline in the stock, including market makers and funds that were short.
198. On January 27, 2021, TD Ameritrade announced that “[i]n the interest of
mitigating risk for our company and clients, we have put in place several restrictions on some
transactions in $GME, $AMC and other securities” and increased the margin requirements on
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certain securities. TD Ameritrade cited “unprecedented market conditions and other factors,” as
the reason for the restrictions.
199. Charles Schwab similarly “put restrictions in place on certain transactions,”
including for GME, AMC and EXPR, and Robinhood said it would not allow margin trading of
shares of both GME and AMC.
200. At approximately 5:00 p.m. on January 27, 2021, the SEC released a statement
that it was “aware of and actively monitoring the on-going market volatility in the options and
equities markets,” but neither the SEC nor any other government agency issued any directive to
restrict trading in the Relevant Securities.
201. The figure below summarizes the prices of GameStop’s stock from December 28,
2020 through January 29, 2021.
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202. The figure below summarizes the prices of Nokia Corporation’s stock from
December 28, 2020 through January 29, 2021.
203. The figure below summarizes the prices of AMC Entertainment Holdings, Inc.’s
stock from December 28, 2020 through January 29, 2021.
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204. The figure below summarizes the prices of Koss Corporation’s stock from
December 28, 2020 through January 29, 2021.
205. The figure below summarizes the prices of Trivago stock from December 28,
2020 through January 29, 2021.
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206. The figure below summarizes the prices of Bed Bath & Beyond stock from
December 28, 2020 through January 29, 2021.
207. The figure below summarizes the prices of Express stock from December 28,
2020 through January 29, 2021.
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208. The figure below summarizes the prices of Tootsie Roll Industries Inc.’s stock
from December 28, 2020 through January 29, 2021.
209. The figure below summarizes the prices of BlackBerry’s stock from December
28, 2020 through January 29, 2021.
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The Illegal Scheme
210. Rather than use their financial acumen to compete and invest in good
opportunities in the market to recoup the loss in their short positions as a result of the growth in
the Relevant Securities’ prices, or paying the price for their highly speculative accumulation of
large short positions, Defendants instead hatched an anticompetitive scheme to limit trading in
the Relevant Securities.
211. After the market closed on January 27, 2021, suspicious coordinated after-hours
trading occurred.
212. Analytics reveals a significant volume of GME short volume immediately prior
to the markets opening on January 28, i.e., indicating that the after-hour traders were trading in
anticipation of a GME sell-off. The grey lines in the chart below represent the volume of short
positions in GME. As demonstrated by the grey lines below, the volume of short positions was
much higher before January 28, 2021 than any of the prior days and had steadily increased the
week prior.
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213. Due to constraints imposed by retail brokers, Retail Investors cannot engage in
after-hours trading to the same extent as institutional investors. It is therefore likely that this
increase in short volume is the result of institutional investors, like the hedge funds and Market
Maker Defendants, taking new short positions.
214. Failure to deliver (“FTD”) occurs when one party in a trading contract does not
deliver on its obligations. For example, recall a short seller borrows a security at a price in hopes
its price will decrease. If, however, a short seller fails to locate and borrow a security to deliver
to a buyer, then that transaction is recorded as a fail to deliver.
215. Increases in FTDs are indicative of naked short selling. That is because naked
short sellers do not actually possess the security they are supposed to “borrow.” Thus, when a
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buyer then seeks to purchase the borrowed security, the short seller cannot deliver because the
short seller never possessed the security in the first place and fails to deliver on its obligations.
216. Increases in FTDs are also consistent with market makers taking on increased
short positions. As market makers take the other side of buy orders routed to them, they borrow
securities to sell short, developing a substantial short position themselves.
217. This practice of shorting stock that is not borrowable is largely inaccessible to
Retail Investors, i.e., Retail Investors cannot engage in naked short selling. However, market
makers are able to short stock that is not borrowable by utilizing a market maker exemption.
218. FTDs in the Relevant Securities also rose dramatically in the period leading up to
January 28, 2021, a phenomenon consistent with both increasing short interest by the Market
Maker Defendants and unnamed coconspirators as well as with improper trading in the form of
selling securities without identifying stocks to borrow to deliver to the retail investors who
bought them.
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219. The figure below summarizes fails to deliver for AMC from January 1, 2021
through February 9, 2021:
220. The figure below summarizes fails to deliver for BBBY from January 1, 2021
through February 9, 2021:
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221. The figure below summarizes fails to deliver for BB from January 1, 2021
through February 9, 2021:
222. The figure below summarizes fails to deliver for EXPR from January 1, 2021
through February 9, 2021:
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223. The figure below summarizes fails to deliver for GME from January 1, 2021
through February 9, 2021:
224. The figure below summarizes fails to deliver for KOSS from January 1, 2021
through February 9, 2021:
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225. The figure below summarizes fails to deliver for NOK from January 1, 2021
through February 9, 2021:
226. The figure below summarizes fails to deliver for TR from January 1, 2021
through February 9, 2021:
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227. The figure below summarizes fails to deliver for TRVG from January 1, 2021
through February 9, 2021:
228. The dramatic increase in short positions was counterintuitive. Chatter in various
financial discussion forums indicated high excitement and motivation on the part of Retail
Investors to continue investing in the Relevant Securities. Many Retail Investors announced
plans to increase long positions in the Relevant Securities on January 28, 2021, which would
mean the prices for the Relevant Securities were likely to go further up, not down.
The Events of January 28, 2021
229. At approximately 1:00 a.m. EST on January 28, 2021, Defendant Robinhood
circulated an email to its users with the subject line “[a]n important update on your expiring
options,” informing them that in light of unprecedented volatility surrounding GME and AMC,
and in an effort to help reduce risk, all GME and AMC options with expirations of January 29th,
2021 will be set to closing transactions only. This meant that customers could close out their
positions but could not make new investments.
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230. The email was silent as to any restrictions placed on trading shares of GME,
AMC, or other securities.
231. At 5:11 a.m. Eastern Standard Time, Robinhood received an email from NSCC
indicating that Robinhood had a deficit of roughly $3 billion dollars.
232. Shortly thereafter, Robinhood had made its decision to move the Relevant
Securities to PCO, i.e., that users of Robinhood could not buy the Relevant Securities and could
only sell them.
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233. Gretchen Howard, Robinhood’s Chief Operating Officer, messaged internally that
Robinhood has a “major liquidity issue,” and that it was moving the Relevant Securities to
position close only (“PCO”). This meant that customers could only sell shares in the Relevant
Securities and were foreclosed from buying them.
234. As the markets opened on January 28, 2021, the Retail Investors woke up to find
that the Brokerage Defendants had suddenly and without notice restricted their ability to
purchase the Relevant Securities.
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235. Retail Investors that used Robinhood as their brokerage could no longer purchase
the Relevant Securities. The “buy” button was deactivated as a feature, leaving users with no
option but to sell or hold their securities.
236. Robinhood addressed the “[w]hy don’t I see a buy button?” question on its
website here: https://robinhood.com/us/en/support/articles/why-dont-i-see-a-buy-button/. It
offered three reasons for the buy button being unavailable on a user’s account. The three reasons
are: 1) “It’s a foreign stock, which we don’t support.” 2) “It’s an over-the-counter (OTC) stock or
a warrant, which Robinhood generally doesn’t support”; and 3) “It’s a stock undergoing
corporate action. The stock will be tradable again once the corporate action has been finalized.”
Robinhood’s explanations did not correspond with reality, however, because the Relevant
Securities were not foreign stocks, OTC stocks or stocks undergoing corporate actions during the
Class Period. Robinhood did not warn users of any situation where it could prevent users from
buying stock out of its own volition. This explanation was incomplete, inaccurate, untrue, and
did not disclose the conspiracy underlying the change.
237. Worse, Retail Investors who had queued purchase orders overnight on January
27, 2021 to purchase stock when the markets opened on January 28, 2021 discovered that their
purchase orders had been cancelled without their consent. Some received messages that claimed
“[y]ou canceled your order” despite the fact that they did no such thing.
238. The restrictions on trading took different forms but had the same effect. Retail
Investors were prohibited from opening new long positions in the Relevant Securities. In other
words, Retail Investors were not permitted to purchase new positions but only permitted to sell
their long positions and not buy more.
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239. On Robinhood’s web platform and mobile app, Retail Investors were blocked
from searching for the Relevant Securities’ ticker symbols.
240. When Robinhood implemented its restrictions early in the morning of January 28,
2021, it did so knowing that it was wrong, and also knowing that it was not in serious danger of
being shut down by the NSCC.
241. In an internal Robinhood Slack chat, David Dusseault, President and Chief
Operating Officer of Robinhood Financial, says “we are to[sic] big for them to actually shut us
down” in response to queries about the NSCC.
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242. The decision to restrict the sale of Relevant Securities was not happenstance.
Robinhood did so with the knowledge that other members of the conspiracy had agreed to do so
as well. Shortly after Robinhood decided to move the Relevant Securities to PCO, an internal
Slack chat between Robinhood employees confirmed that Robinhood knew other brokerages
would similarly restrict the relevant securities.
243. , a manager of market operations for Robinhood, asks David
Dusseault, President and COO of Robinhood Financial, “[d]id we make amc gme only PCO?”
244. Dusseault responds “yeah.” Dusseault further says “rhs received a very large
call–confidentially. All firms on street Jim is saying are doing same thing.” Plaintiffs are
informed and believe that Jim is likely Jim Swartwout, President and COO of Robinhood
Securities.
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245. Dusseault’s statement to reveals that early in the morning of January 28,
2021, Swartwout had been informed and was communicating internally at Robinhood that “all
firms” “are doing the same thing”, i.e., restricting buying but permitting retail investors to sell. It
was not in the independent common interest of Robinhood or other conspirators to do so without
the agreement of its co-conspirators.
246. Consistent with their agreement, the other Brokerage Defendants and other
brokerages employed similar tactics to prevent Retail Investors from opening new positions in at
least one or more of the Relevant Securities.
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247. For instance, Stash prohibited users from viewing tickers for GME and AMC.
Other tickers were under no such restriction and were easily searchable on the platform. Because
of Stash’s platform design, a Retail Investor who cannot view the page for a particular asset
cannot trade in that asset. As a result, Retail Investors were unable to access the page for GME
and AMC to open new long positions in the Relevant Securities.
248. News of the trading restrictions imposed by the Brokerage Defendants and other
brokerage firms soon came to light via widespread media coverage and through the Brokerage
Defendants’ own admissions.
249. Around 9:05 a.m. on January 28, 2021, Interactive Brokers announced via Twitter
that it put AMC, BB, EXPR, GME, and KOSS option trading into liquidation only due to the
extraordinary volatility in the markets. It also announced that long stock positions would require
100% margin and short stock positions would require 300% margin.
250. E*Trade likewise confirmed that it halted GME and AMC stock citing
“extraordinary volumes” as the reason, and various media outlets reported that Alpaca also
restricted trade in the Relevant Securities.
251. Robinhood tweeted that in light current market volatility, it was restricting
transactions for certain securities to position closing only, including $AMC and $GME.
252. Robinhood subsequently updated its website with a list of securities set to
position-closing only, meaning that the Retail Investors could sell and close their positions in
these securities, but they were prohibited from opening new positions. The securities included,
inter alia, AMC, BB, BBBY, EXPR, GME, KOSS, NOK, TR and TRVG.
253. Robinhood attributed the aforesaid restrictions to ongoing market volatility and
other pretextual explanations while not disclosing its communications with other members of the
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conspiracy. Robinhood, acknowledged that it had canceled open orders for the listed securities
and also disabled the ability for users to search for these securities in Robinhood’s mobile app.
Robinhood’s January 28 blog post titled, Keeping Customers Informed Through Market
Volatility, also attributed the restrictions to “significant market volatility” and further disclosed
that Robinhood raised margin requirements for certain securities.
254. Reporting throughout January 28, 2021, revealed that the ban on purchasing stock
of the Relevant Securities occurred at many brokerages. On information and belief, the
Brokerage Defendants adopted similar if not identical restrictions to Retail Investors from
opening new positions in all, or at least one or more of the Relevant Securities. It is unlikely that
they would have done so but for the conspiratorial agreement. Members of the conspiracy acted
to shut down the market with the purpose of benefitting the participants in the conspiracy and
with the intent to harm Plaintiffs and the members of the Class.
255. As intended, Pursuant to the illegal anticompetitive scheme, the coordinated
prohibition on buying any new Relevant Securities—through the Brokerage Defendants’ forced
foreclosure on Retail Investors from buying Relevant Securities—led to a massive sell-off. This
resulted in a steep decline in the stock prices of the Relevant Securities.
256. For example, on January 28, 2021, GME shares reached an intraday peak of
$483.00—before plunging down to $112.25, eventually closing at $193.60, a 44.29% drop from
GME’s close of $347.51 just one day prior. Similarly, shares of AMC plummeted 56.63%, shares
of EXPR fell 50.79% and shares of BBBY fell 36.40%. Retail Investors who wanted to take
advantage of the price drop to buy more shares of the Relevant Securities were unable to due to
the prohibition on purchasing.
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257. The figures below (reproduced from above for ease of reference) illustrate the
share prices of Relevant Securities from December 28, 2020 through January 29, 2021, and show
the rise in share price attributable to the Retail Investors continued purchase of the stocks, as
well as the sharp decrease in share price resulting from the restrictions imposed by the Brokerage
Defendants on or about January 28, 2021.
258. The figure below summarizes the prices of GameStop’s stock from December 28,
2020 through January 29, 2021.
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259. The figure below summarizes the prices of Nokia Corporation’s stock from
December 28, 2020 through January 29, 2021.
260. The figure below summarizes the prices of AMC Entertainment Holdings, Inc.’
stock from December 28, 2020 through January 29, 2021.
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261. The figure below summarizes the prices of Koss Corporation’s stock from
December 28, 2020 through January 29, 2021.
262. The figure below summarizes the prices of Trivago stock from December 28,
2020 through January 29, 2021.
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263. The figure below summarizes the prices of Bed Bath & Beyond stock from
December 28, 2020 through January 29, 2021.
264. The figure below summarizes the prices of Express stock from December 28,
2020 through January 29, 2021.
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265. The figure below summarizes the prices of Tootsie Roll Industries Inc.’s stock
from December 28, 2020 through January 29, 2021.
266. The figure below summarizes the prices of BlackBerry’s stock from December
28, 2020 through January 29, 2021.
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267. The prohibition on purchasing stock did not apply to all investors. Large
investment firms such as the hedge funds and Market Maker Defendants were not restricted from
purchasing the Relevant Securities. While Retail Investors were excluded from purchasing
securities at the reduced rate, investment firms and market makers such as Citadel Securities
holding short positions were permitted to cover their short positions by buying securities at the
artificially reduced price, including from dark pools such as the Market Maker Defendants’ own
internalized exchanges.
268. As the Retail Investors sold their shares in the Relevant Securities due to the
trading restrictions, the Market Maker Defendants internalized those transactions and took the
other side of those sell orders, i.e., they bought the shares the Retail Investors were selling—at an
artificially reduced price—to close their short positions. In doing so, the Market Maker
Defendants were able to buy and return the borrowed securities they had sold short.
269. Numerous broker-dealer firms collectively prohibited Retail Investors from
opening new positions in GME, AMC and other Relevant Securities on January 28, 2021. Some
restricted Retailer Investors from buying or opening new long positions in securities wholesale,
whereas others restricted purchasing options only.
270. Not all brokerages restricted the purchase of the Relevant Securities. Even in the
cases where brokerages were allowing Retail Investors to open new long positions, however,
clearing firms began to raise fees to purchase securities or otherwise instruct brokerages not to
consummate purchase orders.
271. Brokerages and trading venues route trades through clearing brokers which
streamlines the trading process. By increasing fees to purchase a particular stock, the clearing
firm can suppress the number of purchases of that stock and negatively affect the stock’s price.
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272. Many of the Brokerage Defendants, including Robinhood, act as their own
clearing firm. These self-clearing Brokerage Defendants were able to use their own self-clearing
ability to restrict trading through their own brokerages.
273. For the Brokerage Defendants who did not self-clear, they restricted trading at the
direction of their clearing broker.
274. For instance, Anthony Denier (“Denier”), the CEO of Webull, a brokerage which
had restricted trading in the Relevant Securities, placed the blame squarely on its clearing firm,
Apex. According to Denier, the collateral required by Apex for GameStop increased by 100%
and Apex had informed him that Webull needed to shut off the ability to open new positions in
certain stocks. Denier further said that the restrictions originated the morning of January 28,
2021 and was informed that Apex was instructed by the DTCC that it was increasing the
collateral needed to settle trades for the Relevant Securities.
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275. SoFi also restricted trading at the direction of Apex.
276. Other brokerages, including Ally, Dough, Public.com, Stash and Tastyworks also
reported that Apex had instructed them to halt all opening transactions of GameStop, AMC and
Koss on their platforms. For example, Dough tweeted, “[o]ur clearing has notified us that we
must set GME, AMC, and KOSS to closing only. We will comply.” Public.com similarly
tweeted, “[o]ur clearing firm, Apex Holdings, has decided to halt the buying of $KOSS, $GME,
and $AMC.” Public.com subsequently tweeted “[w]e disagree with this decision and are working
hard for our members to resolve the issue.”
277. Upon information and belief, ETC also prohibited Alpaca from allowing its users
to purchase the Relevant Securities.
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278. Perhaps fearing reprisal or worried that Apex or ETC would fail to execute, clear,
and/or settle its customers’ transactions, the Introducing Brokerage Defendants acquiesced to
Apex’s and ETC’s demand to restrict trading in the Relevant Securities.
Collusion Amongst Defendants
279. Defendants were aware that they were acting in concert to collude and manipulate
the market. In an interview given by Interactive Brokers’s chairman Thomas Peterffy
(“Peterffy”) on January 28, 2021, Peterffy admitted that Interactive Brokers had restricted
trading in order to “protect ourselves.” That same evening, Robinhood’s CEO Vlad Tenev
(“Tenev”) told CNBC that Robinhood decided to stop trading in the Relevant Securities, in part
“to protect the firm.”
280. The anticompetitive conspiracy described herein was authorized, ordered or
performed by the Defendants’ respective officers, agents, employees, representatives, or
shareholders while actively engaged in the management, direction, or control of the Defendants’
businesses or affairs.
281. The coordinated and collusive prohibition on purchasing placed on Retail
Investors quickly resulted in criticism from journalists and lawmakers. Robinhood in particular
drew criticism from lawmakers on both sides of the aisle, including calls for congressional
hearings and investigations by the U.S. Department of Justice.
282. Following the unprecedented restriction on trading, Robinhood’s conflict-ridden
relationships quickly came to light. It was revealed that Citadel Securities regularly worked
closely with Robinhood, serving as Robinhood’s market maker over 60% of the time.
283. Citadel Securities pays Robinhood for order flow. The “payment for order flow”
relationship provides market makers with an opportunity to profit from the large amount of
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trading data collected by Robinhood and other Brokerage Defendants and provides Robinhood
with profits as well as the funds required to provide zero-commission trading to its users.
According to Robinhood’s SEC Rule 606 filing, Citadel Securities was responsible for over $141
million of the approximate $330 million that Robinhood received as payment for order flow in
the first quarter of 2021 alone.
284. According to the SEC, payment for order flow can “create conflicts of interest for
brokers because of the tension between the firms’ interests in maximizing payment for order flow
or trading profits generated from internalizing their customers’ orders, and their fiduciary
obligation to route their customers’ orders to the best markets.”
285. Indeed, payment for order flow relationships between Citadel Securities and
Robinhood as well as between Citadel Securities and other brokerages create a system ripe for
illegal coordination.
286. Market makers like Citadel Securities developed large short positions in the
Relevant Securities in the days leading up to and including January 28, 2021 as a result of the
market makers’ regular market making activities. As stock prices rise in an environment driven
by retail trader buying activity, market makers typically take the other side of the retail traders’
stock buys and as a result the market makers develop short positions in the stocks that the retail
traders have been buying. Traditional market makers would try to avoid building a short position
and remain market neutral in such an environment by buying back shares that the market makers
have sold short, while aiming to capturing the bid and ask spread to profit. However, a different
type of market maker will integrate market making and speculative position taking in such an
environment, which would allow the market maker to take on more trading volume by assuming
more risk. It can be difficult for a market maker to both remain neutral and handle high order
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flow, and it can be natural for more aggressive market makers to take on more risk. Thus, many
larger market makers become a hybrid of a market maker and a proprietary trader.
287. Market makers that engage in hybrid market making and proprietary trading, in
an environment such as that seen in late January 2021 where retail traders are continually buying
certain stocks, will see the size of the market makers’ short positions grow as they take the other
side of the retail trading activity and do not adhere to a strictly market neutral approach. As those
market makers’ short positions increase, the short positions will at some point begin to reach the
market makers’ risk limits. This is particularly the case when there are unidirectional market
flows, i.e., when a stock is “breaking out,” and there are no correlated instruments with which
the market makers can hedge their positions. In such a time, it may be impossible for the market
makers to buy back all the shares that the market makers have sold short without locking in a
loss. A market maker is then faced with the choice of either allowing a continued speculative
buildup of a short position, presumably because the market maker expects the market to
subsequently reverse, or closing out at the position at loss. Market makers that hold significant
short positions that continue to build up during break-out conditions where a security has no
natural hedges are clear examples of the hybrid model where speculative position taking is
embedded in a market maker operation.
288. As market makers build their short positions under the dynamic described above,
the market makers will approach the market makers’ risk limits. When a market maker
approaches the market maker’s risk limit, the market maker will be faced with the decision to
either stop selling and begin buying back the shorted stock at a loss, or to work with the firm’s
management and risk group to increase the firm’s risk limits.
289. For a market maker that chooses not to increase the risk limits and instead routes
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orders away to the exchange, that market maker will face dramatic adverse consequences for the
following two reasons.
290. The first reason is that market makers have an incentive to keep the retail traders’
buy orders off the exchange to prevent the buy orders from driving further up the price of the
securities that the retail traders are buying. For example, directing an order of $500,000 for a
given security towards a public exchange would increase the demand for that security on the
exchange and drive the security’s price up. If the market maker had already developed significant
short positions in that security from the dynamic described above, then any increase in the price
of the security would make it difficult for the market maker to buy back that security and close
the market maker’s short positions, and the market maker would experience mark to market
losses as the security moved upward against the market maker’s short position.
291. The second reason is that these market makers have arrangements whereby the
market makers pay retail brokers for payment for order flow. Under these arrangements, the
market makers pay retail brokers to direct trades towards the market makers, thereby creating
volume for the market makers’ market making services. If a market maker is unable to take the
other side of a trade itself internally, the market maker must instead route the trade to the
exchange. In doing so, the market maker then pays a “taker fee” for each trade that the market
maker directs to an exchange. In other words, the market maker must realize a mark to market
loss for each trade that the market maker directs away from itself to an exchange. This loss may
amount to roughly one-half of one cent per share, when payments to the broker and exchange
transactions fees are considered.
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292. Those two reasons were strong enough incentives to not route orders away to an
exchange that the reasons led the Market Maker Defendants to build large short positions in the
Relevant Securities in the days leading up to January 28, 2021.
293. Market makers that continue to grow large short positions in the way described
above may at some point cross the line from market making activity to speculative proprietary
trading as the market makers begin to take directional bets on the direction of the market. Such
speculative proprietary trading violates SEC Regulation SHO, which allows market makers that
engage in bona fide market making activities to benefit from an exception to the “locate” rules
that would otherwise require a broker-dealer to locate stock before selling the stock short.
294. Regulation SHO, which was promulgated in , only applies to bona fide
market making activities, and the preamble to Regulation SHO indicates that “[b]ona-fide market
making does not include activity that is related to speculative selling strategies or investment
purposes of the broker-dealer and is disproportionate to the usual market making patterns or
practices of the broker-dealer in that security.” (69 FR at 48015). A significantly large short
position developed by a market maker should be considered evidence that the market maker
actually has a speculative view on the direction that the market will move and that the market
maker has chosen not to maintain a neutral position. When large market makers such as Citadel
develop such large short positions, those large market makers divert from bona fide market
making activities within the meaning of Regulation SHO by not keeping a neutral book and
instead taking a bet that the market will drop. Such market makers are then no longer engaged in
a bona fide market making activity within the meaning of Regulation SHO but are instead
engaged in “speculative selling strategies” that are “disproportionate to the usual market making
patterns or practices” of the market maker. Notably, the SEC has successfully pursued actions
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against several market makers for violating Regulation SHO through similar speculative short
selling activities that did not constitute bona fide market making activities. See, e.g.,
https://www.sec.gov/litigation/admin/2016/34-79579.pdf and
https://www.sec.gov/litigation/admin/2012/34-66283.pdf.
295. Citadel Securities built substantial short positions in the Relevant Securities in
late January 2021 through the dynamic described above. Since short positions are not disclosed
on Form 13F, though, such positions are not publicly disclosed.
296. The Market Maker Defendants were able to communicate with the brokerages
swiftly and effectively because of their pre-existing relationships. Indeed, high-level executives
of Citadel Securities regularly communicated with and coordinated with high-level executives of
Robinhood and others in the lead up to, during and after the restrictions imposed on or around
January 28, 2021.
297. For example, on January 20, 2021, , Head of Execution Services
for Citadel Securities, and Josh Drobnyk, the newly hired Vice President of Corporate Relations
and Communications for Robinhood, agreed to communicate. and Drobnyk had a prior
relationship through Drobnyk’s employment at FINRA when served on FINRA’s board.
298. During this communication, extended a proposition to Drobnyk.
Drobnyk discussed with Dan and Lucas, likely Daniel Gallagher and Lucas Moskowitz,
Robinhood’s chief legal officer and deputy general counsel respectively and agreed to revert to
“by early next week at the latest.”
299. responded it was “good to reconnect and very happy that we will be
working together.” Additionally, responded for Drobnyk to “just let us know if interested
and who the main contact should be.”
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300. On Monday, January 25, 2021, Drobnyk emails and says “[w]e are on
board.” Drobnyk says Lucas Moskowitz, Robinhood’s deputy general counsel, would be the
main point of contact.
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301. in turn extends an invitation to Moskowitz to “chat” and expressed that
“we obviously have a strong relationship between the two firms.”
302. and Moskowitz then arranged a call for 11 a.m. Eastern time on January
26, 2021.
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303. While the details of these communications have not been disclosed, it is clear that
these representatives of Citadel Securities and Robinhood reached an agreement on January 25,
2021, and each took affirmative steps in furtherance of the illicit scheme.
304. On January 27, 2021, the day before the restrictions were implemented, high
level employees of Citadel Securities and Robinhood had numerous communications with each
other that indicate that Citadel applied pressure on Robinhood.
305. In an internal Slack chat conversation, Gretchen Howard, Robinhood’s Chief
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Operating Officer, informs Vlad Tenev that “Dan and I are joining Jim at 5pm on a call with
Citadel.” Dan and Jim likely refer to Dan Gallagher and Jim Swartwout, President and Chief
Operating Officer of Robinhood Securities. Citadel Securities had requested to speak that
evening. Howard indicated that she believed Citadel Securities would make demands on limiting
payment for order flow.
306. As described above, Robinhood makes significant sums from selling order flow,
and in particular, selling order flow to Citadel Securities.
307. Tenev muses that “Maybe this would be a good time for me to chat with Ken
griffin [sic]” and tells Howard, “You guys can mention that.”
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308. Shortly thereafter, in an internal chat, , Senior Director of Clearing
Operations at Robinhood tells Swartwout, “[a]necdotal evidence that several ‘very large’ firms
are having really bad nights too.”
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309. Swartwout responds that “everyone is. you wouldnt [sic] believe the convo we
had with Citadel. total mess.”
310. At 8:16 p.m., Swartwout emails Michael at Citadel Securities looking
for “new Citadel numbers.” informs Swartwout at 9:31 p.m. that the numbers were
“[f]irming up right now in light of the follow up conversation between Gallagher and .”
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311. At 8:29 p.m., , Citadel Securities’s Vice President of Business
Development, emailed Robinhood personnel including Swartwout that , “whom Vlad has
met before, is available until 10pm EST to speak to Vlad.” offers to set up a call.
312. Swartwout, in turn responds minutes later, “Because of our partnership, Vlad
would like to have a discussion with Ken [Griffin] at some point, just given our relationship. Not
specific to this crazy issue.”
313. Swartwout later cryptically tells , “I have to say I am beyond disappointed in
how this went down. It’s difficult to have a partnership when these kind of things go down this
way.”
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314. High-level employees of Citadel Securities did not only communicate with
Robinhood’s employees.
315. For example, on January 28, 2021, high level employees of Defendant E*Trade
communicated with employees of Citadel Securities to ensure certain orders were cancelled.
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316. , Senior Manager for Trading Operations for E*Trade, emails
Citadel Securities about “Potential open orders.” lists a number of securities and asks
Citadel Securities if it can “confirm you’re out on these.” of Citadel Securities
confirmed that several of the orders were “Canceled.”
317. Defendants’ conspiratorial acts resulted in lockstep price movements of the
Relevant Securities that can only be explained by coordinated, lockstep actions by Defendants, in
particular when considering Retail Investors were only permitted to sell positions in the Relevant
Securities.
318. As demonstrated by the charts below, the stock prices of the Relevant Securities
moved in parallel fashion throughout January 28, 2021. For example, the charts revealed a
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coordinated rise in the prices of the Relevant Securities from approximately 11:00-11:30 a.m.,
immediately after the Relevant Securities took a steep dive after the markets opened. At that
time, few if any Retail Investors were permitted to purchase positions in the Relevant Securities
and only institutional investors such as hedge funds and the Market Maker Defendants were
permitted to purchase.
The Anticompetitive Scheme Continued After January 28, 2021
319. Partly as a result of criticism, as the market opened on January 29, 2021, nearly
all of the Brokerage Defendants had lifted their trading restrictions and permitted Retail
Investors to open new long positions in the Relevant Securities.
320. Even in the face of increased scrutiny, however, Defendants continued their
anticompetitive scheme to suppress the price of the Relevant Securities.
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321. While purchases of the Relevant Securities were permitted, they were heavily
restricted by the Brokerage Defendants, resulting in continuing suppression of their value.
322. Many of the Brokerage Defendants restricted trading of long option contracts and
announced to Retail Investors they would close out their profitable option positions
automatically.
323. Robinhood also placed limitations on the number of new positions its users could
open by capping the total number of shares and options contracts an individual could hold in
certain securities. Nevertheless, Retail Investors, still believing in the value of the assets,
continued to purchase the Relevant Securities once they were permitted.
324. On January 29, 2021, Robinhood limited users to purchasing imposed limitations
on the Relevant Securities. With respect to GameStop, Robinhood first restricted Retail Investors
to purchasing only two shares of GameStop, which resulted in a rapid decline in the value of
GameStop.
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325. On January 30, 2021, the value of the Relevant Securities began to regain the
value lost the prior days as a result of Defendants’ coordinated action to suppress the value of the
stocks. Because the Market Maker Defendants, hedge funds, and other unnamed conspirators
still had distressed short positions outstanding, this threatened their ill-gotten gains achieved the
day before. Robinhood then instituted a one share limit on the Relevant Securities, including
GME and AMC further causing the value of the stocks to decrease.
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326. Even though some brokerages had lifted their restrictions, the effects of the
restrictions persisted as a result of the continued restrictions at Robinhood and other brokerages.
327. Although Apex had lifted restrictions on trading by January 29, 2021, it continued
its participation in the scheme by policing the conspiracy and warning Robinhood of efforts to
purchase the Restricted Securities.
328. An internal Robinhood Slack chat revealed that it was Apex that alerted
Robinhood to efforts to purchase the Restricted Securities. For example, on January 29, 2021,
Miles Wellesley, VP of Business Development at Robinhood, shared a link to a Reddit post titled
“How to Buy GME Above Broker Limits” to David Dusseault, President and COO of Robinhood
Financial.
329. Wellesley tells Dusseault, “FYI Apex pinged me on this to make sure we’re
aware of it.”
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330. Specifically, Apex notified Robinhood about posts on WallStreetBets that indicate
Retail Investors found a loophole which allowed them to purchase shares of the Relevant
Securities above the limitations imposed by Robinhood.
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331. Each artificial limitation in the amount of securities a Retail Investor could
purchase correlated with a subsequent decrease in share value. As purchases of the Relevant
Securities were limited, more investors were pressured to sell who otherwise would not have in
the presence of a free and open market.
332. In order to disguise their illegal agreement after the restrictions on or around
January 28, 2021, high-level executives and communications professionals at Citadel Securities
and Robinhood communicated between each other to coordinate their messaging.
333. On January 30, 2021, Citadel Securities’s sent an email to Josh
Drobnyk, Robinhood’s Vice President of Corporate Communications. In this email,
introduced Drobnyk to , who described as the person “running point on this
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narrative for us.” indicated he “wanted to generally coordinate messaging.” Additionally,
cc’d two individuals he described as “our GCs” “for privilege.”
334. , who was on a flight, arranged to “connect” with Drobnyk once
landed. asked if the issue was “urgent” or “super urgent.”
335. called Drobnyk twice after the flight landed.
336. Robinhood ultimately continued to impose limitations on certain securities
through February 4, 2021, despite announcing on January 29, 2021, that it raised more than $1
billion to help meet rising demands for cash and shore up its balance sheet. The money raised
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was on top of $500 million Robinhood accessed through credit lines to ensure it had the capital
required to keep allowing its clients to trade the Relevant Securities. On February 1, 2021,
Robinhood announced that it raised an additional $2.4 billion in funding on top of the $1 billion
it has raised the previous week.
337. On January 29, 2021, the SEC once again issued a statement that it was “closely
monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the
past several days,” and on February 1, 2021, then acting SEC Chair Allison Herren Lee stated
during an interview with NPR that “[t]he Commission will closely review actions taken by
regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to
trade certain securities.” She also stated that the SEC was investigating the role that short selling
may have played in the recent events.
338. On January 31, 2021, Robinhood’s CEO Tenev published an opinion piece on
USA TODAY. Despite previously citing market volatility as the reason for Robinhood’s decision
to impose the trading restrictions, Tenev now stated Robinhood’s decision was made based on
clearinghouse-mandated deposit requirements that it claimed were “increased ten-fold.”
339. However, Tenev’s excuse that Robinhood restricted trading because of NSCC
deposit requirements increasing ten-fold was merely pretext as Robinhood likely knew it had
liquidity issues before the NSCC margin call and made the decision to restrict trading in the
Relevant Securities before NSCC notified them of same.
340. On February 18, 2021, Robinhood’s CEO Tenev testified before the U.S. House
Committee on Financial Services. Tenev’s prepared statement disclosed that the Robinhood
Securities operations team made the decision to impose trading restrictions on the Relevant
securities between 6:30 and 7:30 a.m. EST. Although Robinhood had been attributing its trading
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restrictions to increased clearinghouse-mandated deposit requirements, Tenev revealed that
Robinhood met its revised deposit requirements a little after 9:00 a.m. EST on January 28, 2021.
Nevertheless, Robinhood held fast to its decision to restrict purchases of the Relevant Securities
when the market opened, continued to impose restrictions for the entirety of trading day, and
limited the number of stocks and option contracts its users could acquire through February 4,
2021.
341. Similarly, Apex’s president Tricia Rothschild admitted in an interview with
Financial Planning on March 4, 2021, that Apex did not restrict trading as a result of capital
requirements, stating that Apex had headroom in terms of the capital available on its balance
sheet and also had credit lines it could call upon. Notwithstanding, Apex instructed Ally, Dough,
Public.com, Sofi, Stash, Tastyworks and Webull to halt their clients’ ability to purchase shares of
GME, AMC and/or KOSS on January 28. Apex’s communication to suspend users’ ability to
purchase shares of the Relevant Securities was only made telephonically to Webull, and
presumably others.
Data Reveals that Shorts Exited Their Exposed Short Positions
342. Publicly available data reveals that short interests significantly decreased as a
result of the trading restrictions described herein, with the sharpest and most significant
decreases occurring after the coordinated restrictions on January 28, 2021.
343. While it is difficult to determine who owns a particular short interest at any
particular time and when that investor exits their short position, entities such as FINRA and
governmental organizations such as the SEC regularly aggregate and report certain statistics
related to short interests.
344. FINRA member firms are required to report their short positions as of settlement
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twice every month: on the 15th (or the preceding business day if the 15th is not a business day)
and the last business day of the month. FINRA compiles the data and publishes the total short
interest on the 8th business day after the reporting settlement date.
345. Short interest is defined as the number of shares of a security that have been sold
short but have not yet been covered or closed out and may be expressed as a number or
percentage.
346. Based on published short interest rates, aggregate short interest in the Relevant
Securities, a strong indicia of bearish market sentiment, generally climbed in the reporting
periods before the restrictions on and around January 28, 2021 and dropped precipitously as of
January 29, 2021 and continuing through the first few weeks of February, i.e., short interest
plummeted during the periods including the trading restrictions indicating short holders had
exited their short positions during or soon after the trading restrictions. While some of the
Relevant Securities reflect increasing short interest as of the report on January 29, 2021, because
the reports do not require investors to disclose when those short positions were purchased, the
data could capture large openings of short interest before January 28, 2021.
347. The below are charts of the estimated total short interest for the Relevant
Securities as reported by Market Beat from December 2020 through February 2021:
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AMC Entertainment Holdings, Inc. (AMC)
Report Date Total Shares Sold Dollar Volume Sold Change from
Short Short Previous Report
Dec. 15, 2020 38,080,000 $121.48 million +13.6%
Dec. 31, 2020 38,990,000 $84.22 million +2.4%
Jan. 15, 2021 44,670,000 $97.38 million +14.6%
Jan. 29, 2021 37,720,000 $325.52 million -15.6%
Feb. 12, 2021 48,130,000 $270.01 million +27.6%
Feb. 26, 2021 55,490,000 $460.01 million +15.3%
BlackBerry Ltd. (BB)
Report Date Total Shares Sold Dollar Volume Sold Change from
Short Short Previous Report
Dec. 15, 2020 34,570,000 $285.20 million +16.8%
Dec. 31, 2020 39,560,000 $263.87 million +14.4%
Jan. 15, 2021 43,490,000 $396.19 million +9.9%
Jan. 29, 2021 20,410,000 $299.01 million -53.1%
Feb. 12, 2021 32,350,000 $403.08 million -58.5%
Feb. 26, 2021 43,030,000 $455.26 million -33.0%
Bed Bath & Beyond Inc. (BBBY)
Report Date Total Shares Sold Dollar Volume Sold Change from
Short Short Previous Report
Dec. 15, 2020 72,770,000 $1.37 billion +9.3
Dec. 31, 2020 76,180,000 $1.42 billion +4.7%
Jan. 15, 2021 74,890,000 $2.05 billion -1.7%
Jan. 29, 2021 31,770,000 $1.07 billion -57.6%
Feb. 12, 2021 26,240,000 $723.96 million -17.4%
Feb. 26, 2021 25,460,000 $669.34 million -3.0%
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Express, Inc. (EXPR)
Report Date Total Shares Sold Dollar Volume Sold Change from
Short Short Previous Report
Dec. 15, 2020 6,970,000 $7.25 million +9.5%
Dec. 31, 2020 8,020,000 $7.59 million +15.1%
Jan. 15, 2021 7,220,000 $9.24 million -10.0%
Jan. 29, 2021 8,560,000 $40.23 million +18.6%
Feb. 12, 2021 5,930,000 $16.72 million -30.7%
Feb. 26, 2021 4,560,000 $13.63 million -23.1%
GameStop (GME)
Report Date Total Shares Sold Dollar Volume Sold Change from
Short Short Previous Report
Dec. 15, 2020 68,130,000 $866.61 million +0.2%
Dec. 31, 2020 71,200,000 $1.37 billion +4.5%
Jan. 15, 2021 61,780,000 $2.47 billion -13.2%
Jan. 29, 2021 21,410,000 $4.14 billion -65.3%
Feb. 12, 2021 16,470,000 $841.62 million -23.1%
Feb. 26, 2021 14,200,000 $1.54 billion -13.8%
Koss Corporation (KOSS)
Report Date Total Shares Sold Dollar Volume Sold Change from
Short Short Previous Report
Dec. 15, 2020 700 $1,715.00 -83.3%
Dec. 31, 2020 590,300 $2.18 million +84,228.6%
Jan. 15, 2021 12,800 $39,296.00 -97.8%
Jan. 29, 2021 756,100 $31.73 million +5,807.0%
Feb. 12, 2021 289,000 $4.60 million -61.8%
Feb. 26, 2021 598,700 $12.89 million -107.2%
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Nokia Corp. (NOK)
Report Date Total Shares Sold Dollar Volume Sold Change from
Short Short Previous Report
Dec. 15, 2020 48,240,000 $192.96 million -5.7%
Dec. 31, 2020 50,520,000 $196.52 million +4.7%
Jan. 15, 2021 59,550,000 $243.56 million +17.9%
Jan. 29, 2021 56,840,000 $266.58 million -4.6%
Feb. 12, 2021 16,470,000 $841.62 million -23.1%
Feb. 26, 2021 48,270,000 $197.91 million -15.1%
Tootsie Roll Industries, Inc. (TR)
Report Date Total Shares Sold Dollar Volume Sold Change from
Short Short Previous Report
Dec. 15, 2020 7,260,000 $223.03 million -1.4%
Dec. 31, 2020 7,390,000 $219.34 million +1.8%
Jan. 15, 2021 7,400,000 $222 million +0.1%
Jan. 29, 2021 5,010,000 $194.29 million -32.3%
Feb. 12, 2021 3,960,000 $122.64 million -21.0%
Feb. 26, 2021 4,020,000 $128.36 million +1.5%
Trivago N.V. (TRVG)
Report Date Total Shares Sold Dollar Volume Sold Change from
Short Short Previous Report
Dec. 15, 2020 2,410,000 $5.78 million -18.0%
Dec. 31, 2020 1,990,000 $4.48 million -17.4%
Jan. 15, 2021 1,940,000 $4.33 million -2.5%
Jan. 29, 2021 976,500 $2.42 million -49.7%
Feb. 12, 2021 2,900,000 $7.74 million +197.0%
Feb. 26, 2021 2,580,000 $10.73 million -11.0%
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348. The data shows that short interest generally declined sharply after the coordinated
trading restrictions on January 28, 2021 and continued to decrease into February.
349. According to Reuters, short interest in GameStop ultimately declined to an
estimated 15% as of March 24, 2021 from a peak of 141% in the first week of January.
350. FINRA also aggregates dark pool trading activity. Generally, FINRA classifies
over-the-counter (“OTC”; OTC is generally the trading of securities between two counterparties
outside of formal exchanges and without the supervision of an exchange regulator) trading data
into two categories, alternative trading systems (“ATS”), and OTC non-ATS dealers. Both ATS’s
and OTC non-ATS’s are considered dark pools or dark exchanges due to their lack of
transparency.
351. As mentioned above, dark pools are the preferred trading venue for large
institutional investors largely because they are not transparent. Additionally, Retail Investors
generally do not have access to trading on dark pools.
352. Additionally, the internal exchanges market makers such as Citadel Securities use
to internalize order executions are also dark exchanges.
353. FINRA data shows notable and significant increases in dark pool trading activity
for each of the Relevant Securities on and around January 28, 2021, captured in the data tables
below in the week beginning January 25, 2021.
354. Below are the trading data for ATS and OTC non-ATS as published by FINRA for
the Relevant Securities for the months of December 2020 through February 2021.
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AMC Entertainment Holdings Inc. (AMC)
OTC (Non-ATS)
ATS Issue Data
Issue Data
Week Starting Total Shares Total Trades Total Shares Total Trades
12/7/2020 3,892,732 18,682 67,419,270 129,817
12/14/2020 18,391,507 46,178 104,778,002 202,961
12/21/2020 11,346,974 24,141 33,528,313 82,458
12/28/2020 16,302,709 26,755 64,304,993 117,401
1/4/2021 26,753,239 57,147 91,328,050 155,666
1/11/2021 34,838,029 52,224 190,054,425 219,454
1/18/2021 39,025,588 107,140 468,261,296 579,153
1/25/2021 163,944,634 861,814 1,316,481,677 6,387,856
2/1/2021 53,119,619 396,405 679,049,807 5,292,157
2/8/2021 19,006,375 100,007 267,479,975 1,581,292
2/15/2021 11,094,977 47,451 128,498,955 606,484
2/22/2021 57,563,861 255,961 655,595,790 2,765,472
BlackBerry Ltd. (BB)
OTC (Non-ATS)
ATS Issue Data
Issue Data
Week Starting Total Shares Total Trades Total Shares Total Trades
12/7/2020 6,741,741 28,369 52,582,544 83,413
12/14/2020 7,390,537 29,589 42,234,476 69,413
12/21/2020 4,080,363 16,744 22,436,470 33,445
12/28/2020 3,328,364 18,541 14,320,357 24,573
1/4/2021 5,497,996 23,126 24,320,552 35,956
1/11/2021 15,749,501 70,140 120,235,955 233,852
1/18/2021 22,768,771 102,523 214,606,499 485,668
1/25/2021 97,793,056 537,722 517,348,442 2,535,183
2/1/2021 15,853,070 71,561 115,283,157 706,823
2/8/2021 9,421,223 47,468 46,803,945 289,363
2/15/2021 4,935,816 27,732 28,637,443 150,047
2/22/2021 8,031,370 40,568 40,626,852 168,204
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Bed Bath & Beyond Inc. (BBBY)
OTC (Non-ATS)
ATS Issue Data
Issue Data
Week Starting Total Shares Total Trades Total Shares Total Trades
12/7/2020 5,657,584 32,668 8,876,324 22,509
12/14/2020 4,042,873 30,348 10,771,286 29,748
12/21/2020 1,750,491 13,449 5,254,166 14,276
12/28/2020 3,178,084 23,109 8,607,888 24,582
1/4/2021 11,217,626 58,775 29,015,914 89,634
1/11/2021 8,259,495 45,764 29,383,395 71,871
1/18/2021 6,835,010 38,787 25,306,634 64,126
1/25/2021 38,730,381 193,066 110,400,806 466,999
2/1/2021 5,591,490 28,687 16,197,789 103,485
2/8/2021 4,498,953 17,566 6,783,384 40,971
2/15/2021 1,599,526 14,266 2,724,684 17,053
2/22/2021 3,416,041 19,961 4,886,756 22,852
Express, Inc. (EXPR)
OTC (Non-ATS)
ATS Issue Data
Issue Data
Week Starting Total Shares Total Trades Total Shares Total Trades
12/7/2020 1,380,310 5,117 10,348,509 10,888
12/14/2020 2,071,231 5,695 8,254,132 8,387
12/21/2020 409,385 2,000 4,185,373 4,102
12/28/2020 953,642 2,928 7,992,473 8,329
1/4/2021 903,858 3,041 6,556,352 6,822
1/11/2021 2,745,296 9,087 32,839,484 33,322
1/18/2021 3,192,561 11,068 29,041,757 31,091
1/25/2021 38,745,046 219,271 393,960,045 832,222
2/1/2021 5,518,566 24,966 51,136,521 169,630
2/8/2021 1,955,926 9,126 25,409,465 73,501
2/15/2021 1,483,747 7,268 16,072,575 31,354
2/22/2021 4,167,742 23,818 67,521,294 105,853
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GameStop Corp. (GME)
OTC (Non-ATS)
ATS Issue Data
Issue Data
Week Starting Total Shares Total Trades Total Shares Total Trades
12/7/2020 4,150,662 23,690 26,137,279 107,667
12/14/2020 3,104,483 16,397 19,437,594 60,013
12/21/2020 4,900,689 28,967 35,405,726 122,854
12/28/2020 1,876,336 12,173 14,402,253 64,118
1/4/2021 3,458,092 21,807 13,926,925 63,783
1/11/2021 22,330,904 145,558 156,958,902 588,136
1/18/2021 29,392,454 206,476 170,039,730 849,773
1/25/2021 44,126,023 593,161 184,322,090 4,275,955
2/1/2021 17,913,654 392,399 109,775,294 3,417,362
2/8/2021 6,997,461 80,593 49,113,110 825,424
2/15/2021 3,905,721 45,227 21,554,348 341,014
2/22/2021 18,960,413 370,347 121,667,858 3,157,435
KOSS Corporation (KOSS)
OTC (Non-ATS)
ATS Issue Data
Issue Data
Week Starting Total Shares Total Trades Total Shares Total Trades
12/7/2020 1,020 25 12,957 141
12/14/2020 1,053 16 7,541 110
12/21/2020 957 14 17,168 99
12/28/2020 704,028 4,886 7,693,766 24,331
1/4/2021 49,563 281 222,980 1,144
1/11/2021 19,983 175 101,229 560
1/18/2021 84,142 495 787,582 3,456
1/25/2021 4,018,164 38,573 30,297,563 227,899
2/1/2021 1,333,623 13,244 12,227,611 119,411
2/8/2021 445,988 3,444 3,053,718 28,387
2/15/2021 691,320 4,516 4,781,106 25,017
2/22/2021 3,766,876 33,228 24,262,377 157,009
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Nokia Corp. (NOK)
OTC (Non-ATS)
ATS Issue Data
Issue Data
Week Starting Total Shares Total Trades Total Shares Total Trades
12/7/2020 15,304,870 37,078 58,343,774 67,572
12/14/2020 11,046,987 22,587 38,453,491 51,333
12/21/2020 6,159,632 14,672 37,235,226 47,585
12/28/2020 6,279,603 13,492 29,688,635 44,172
1/4/2021 17,024,361 27,365 53,243,415 61,097
1/11/2021 22,745,501 35,962 84,580,606 83,576
1/18/2021 14,035,810 33,249 51,579,395 62,745
1/25/2021 244,503,016 912,658 971,216,858 3,015,757
2/1/2021 54,513,067 158,502 316,724,886 1,331,964
2/8/2021 299,776,442 79,687 147,701,559 519,336
2/15/2021 14,722,906 35,643 57,872,060 199,581
2/22/2021 33,203,315 71,206 124,573,499 292,852
Tootsie Roll Industries, Inc. (TR)
OTC (Non-ATS)
ATS Issue Data
Issue Data
Week Starting Total Shares Total Trades Total Shares Total Trades
12/7/2020 308,812 2,804 175,519 1,131
12/14/2020 132,678 2,076 166,570 1,263
12/21/2020 64,967 909 65,986 1,036
12/28/2020 229,091 1,890 118,505 1,394
1/4/2021 213,383 2,306 130,491 1,305
1/11/2021 78,974 1,036 91,898 1,096
1/18/2021 103,510 1,486 117,530 1,046
1/25/2021 3,042,836 17,884 2,490,108 23,595
2/1/2021 555,331 5,426 688,068 7,510
2/8/2021 147,255 1,835 282,505 2,971
2/15/2021 243,438 2,667 294,213 2,313
2/22/2021 408,039 3,555 303,286 2,759
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Trivago N.V. (TRVG)
OTC (Non-ATS)
ATS Issue Data
Issue Data
Week Starting Total Shares Total Trades Total Shares Total Trades
12/7/2020 594,590 2,369 3,598,268 7,023
12/14/2020 289,827 1,184 2,231,256 4,985
12/21/2020 432,013 1,722 1,486,232 2,818
12/28/2020 327,779 1,787 1,517,784 2,911
1/4/2021 303,728 2,063 1,809,736 4,073
1/11/2021 188,440 1,216 1,552,429 3,724
1/18/2021 331,955 1,480 1,230,548 2,732
1/25/2021 6,425,337 22,467 31,902,982 64,826
2/1/2021 1,326,788 6,219 8,513,999 21,645
2/8/2021 2,006,351 8,135 20,579,588 42,034
2/15/2021 1,232,263 6,429 12,896,577 33,888
2/22/2021 1,864,214 9,477 18,561,297 54,194
355. As reported by FINRA, the columns representing total shares are the total volume
of shares of that security reported for that particular week. The total trades represent the total
amount of transactions involving those shares.
356. For each of the Relevant Securities, total shares and total trades in dark
exchanges peaked during the week of January 25, 2021 and February 1, 2021 during the period
when restrictions were first placed on the Relevant Securities, and were higher than every other
week recorded from December 2020 through February 2021.
357. Given that Retail Investors are generally not able to trade in dark pools and dark
exchanges, the trading increases set forth in the FINRA reports indicate high institutional
investor trading including high market maker activity around the time of the restrictions on the
Relevant Securities, consistent with institutional investors taking advantage of the trading
restrictions to exit their vulnerable short positions.
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358. Furthermore, FINRA OTC transparency data indicates that not only dark trading
activity was elevated for the week of January , , but that the bulk of that trading activity
can be attributed to Citadel Securities.
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SYMBOL BROKER VOLUME % OF VOLUME
GME CANACCORD GENUITY LLC , %
GME CITADEL SECURITIES LLC , , %
GME CLEAR STREET LLC , %
GME COMHAR CAPITAL MARKETS, LLC , , %
GME COWEN AND COMPANY , , %
GME CUTTONE & CO., LLC , %
GME De Minimis Firms , , %
GME G EXECUTION SERVICES, LLC , , %
GME HRT EXECUTION SERVICES LLC , %
GME INTERACTIVE BROKERS LLC , %
GME JANE STREET CAPITAL, LLC , , %
GME LEK SECURITIES CORPORATION , %
GME NASDAQ EXECUTION SERVICES, LLC , %
GME NATIONAL FINANCIAL SERVICES LLC , %
GME STOCKPILE INVESTMENTS, INC. , %
GME TWO SIGMA SECURITIES, LLC , , %
GME UBS SECURITIES LLC , , %
GME VIRTU AMERICAS LLC , , %
GME WOLVERINE SECURITIES, LLC , , %
TOTAL , ,
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SYMBOL BROKER VOLUME % OF VOLUME
AMC CITADEL SECURITIES LLC , , %
AMC CLEAR STREET LLC , %
AMC COMHAR CAPITAL MARKETS, LLC , , %
AMC COWEN AND COMPANY , , %
AMC CUTTONE & CO., LLC , %
AMC De Minimis Firms , , %
AMC G EXECUTION SERVICES, LLC , , %
AMC HRT EXECUTION SERVICES LLC , , %
AMC INTERACTIVE BROKERS LLC , %
AMC JANE STREET CAPITAL, LLC , , %
AMC LEK SECURITIES CORPORATION , , %
AMC NATIONAL FINANCIAL SERVICES LLC , %
AMC SAGETRADER, LLC , %
AMC STOCKPILE INVESTMENTS, INC. , %
AMC TWO SIGMA SECURITIES, LLC , , %
AMC UBS SECURITIES LLC , , %
AMC VIRTU AMERICAS LLC , , %
AMC WOLVERINE SECURITIES, LLC , , %
TOTAL , , ,
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359. For example, as shown in the first two tables from FINRA’s OTC transparency
data reports for GME and AMC for the week of January 25, 2021, Citadel Securities represented
roughly 50% of the non-dark pool over-the-counter market, the bulk of which is market maker
volume. The scale of Citadel Securities’s business will have significant impact on short volume
reports available from FINRA and provides insight into Citadel Securities’s short selling activity
beyond what is disclosed in 13F reporting.
360. The FINRA short volume reports provide daily numbers for Short Volume and
Total Volume (one-sided volume) for all dark OTC trading activity. The percentage of the total
volume represented by short sales constitutes the percentage volume of sales that were sold
short. The associated volume of each trade that is reported through such metrics provides
supporting evidence that a party that executed off-exchange had a short position at the time the
contributing trade was executed. If a market maker maintains a consistent short position, the
market maker will report significant short volume through these metrics. When a market maker
that has significant market share has been maintaining a long position and then switches the
position to a short position that is subsequently maintained, there will be a significant increase in
the short volume reported. Because Citadel Securities represents about % of the dark trading
activity, a large shift in the percentage of sales represented by short trades is highly likely to be
caused by a shift in Citadel Securities’s position from long to short or vice versa.
361. The short volume reporting is consistent with a material change in Citadel
Securities’s position on January th, , where Citadel Securities appears to have shifted from
reporting shares sold long to shares sold short, as evidenced by the change in short ratios and
short volume reported over the period. As seen in the table below, for each day, January ,
and , the percentage of sells represented by shorts was about %. On January that amount
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jumped to about % where it plateaued for roughly days. Such an increase is highly unusual
and consistent with Citadel Securities taking on a large short position and strongly implies that
Citadel Securities was short during that time. The transacted volume and F reports of other
candidate market makers that might have contributed to the increase in the percentage of short
volume relative to total volume does not suggest alternative explanations, given their relatively
low share of the OTC market for the week of January , .
SHORT SALE TOTAL % SHORT
DATE SYMBOL SHORT EXEMPT VOLUME VOLUME
GME , , , , , %
GME , , , , , %
GME , , , , , %
GME , , , , , %
GME , , , , , %
GME , , , , , %
The Structure and Characteristics of the Market Support the Existence
of an Anticompetitive Agreement
362. The structure and characteristics of the market for securities, and in particular the
lack of disclosure of short interest positions at any given time, make it conducive to collusion
and anticompetitive conduct.
363. Courts, scholars, and government agencies such as the Department of Justice
recognize that structural market factors can help assess whether collusive conduct in violation of
the antitrust laws has occurred.
364. High Barriers to Entry. Markets with high barriers to entry are susceptible to
anticompetitive collusion. Under basic economic principles, if there are high barriers to entry,
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new entrants are unlikely to enter the market. If a broker dealer were to restrict trading in a
security in high demand, new broker-dealers would enter the market to seek to benefit from the
investors who wish to trade in the restricted security.
365. The financial services industry is characterized by substantial barriers to entry. An
entrant seeking to become a broker dealer or a clearing firm would need specialized knowledge,
several licenses and memberships, including memberships in organizations such as FINRA. In
addition to licensure costs, compliance costs to adhere to industry and regulatory standards are
also significant.
366. Additionally, entrants require significant amounts of cash or capital to deposit at
clearinghouses such as the DTCC as collateral. The significant collateralization requirement also
serves as a barrier to entry.
367. Technological infrastructure has also become a barrier to entry. As the financial
services industry shifts more and more technology focused and as many successful participants
are financial technology firms, a new entrant needs to have the necessary infrastructure and
expertise to navigate the digital market. Many of the exchanges on which securities are traded
are electronic and fully automated, and allow institutions to directly interact with the securities
on offer on the exchanges. NASDAQ for example has been fully electronic since its inception in
1971. Therefore, any potential market entrant would also need significant technological
wherewithal and sophistication in order to participate in the financial markets.
368. High Fixed Costs and Low Variable Costs. Markets characterized by high fixed
costs and low variable costs are susceptible to anticompetitive collusion. The markets for broker
dealers, clearing firms and market making are defined by high fixed costs, low variable costs and
benefit greatly from scale, particularly with regards to online broker-dealers and clearing firms.
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369. For example, online broker-dealers require significant IT infrastructure, software,
and data security infrastructure in order to develop and maintain the applications through which
investors trade. This is in addition to the licensure and regulatory costs described above.
370. Likewise, clearing firms require significant IT infrastructure, software, and data
security infrastructure in order to facilitate the digital clearing and custodial services they
provide to online broker dealers.
371. Similarly, many market makers are high frequency traders and rely on
sophisticated software and algorithms to match the incoming bids and offers of the orders routed
to them from either broker dealers or clearing firms.
372. In particular for HFT market makers, latency is critical in order to react quickly
and engage in arbitrage strategies. As a result, HFT market makers invest significant effort and
resources to increase the speed of trading technology to maximize their profits.
373. Variable costs are low. Once infrastructure is in place, it generally is not more
expensive to handle 10,000 trades as opposed to 10, particularly in the high-tech financial
services market as exists today.
374. Commoditization. The Relevant Securities are commodity (homogenous)
products. A conspiracy involving commodity products can be easier to organize than one
involving differentiated products. One share in a Relevant Security is identical to another share
in that same security—it has similar, if not identical, characteristics and could be substituted for
the another. Competition is purely based on price, in that a security purchased at a particular time
could be more valuable than a security purchased at another time, depending on market
conditions. Markets in which the product is commoditized are susceptible to anticompetitive
collusion.
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375. Additionally, securities’ prices are linked globally. The price of a security being
traded on U.S. exchanges will be nearly identical to the price of the security being traded on a
foreign exchange.
376. For example, one share in stock X is functionally identical to another share of
stock X. The only determinant of price is the relative supply and demand in investors who want
to buy or sell shares in stock X.
377. Retail Investors Subject to the Conspiracy Are a Captive Market. In a competitive
market, if a consumer desires a product or service that is not offered by a particular seller, the
consumer can go to a different seller who does offer the desired product or service.
378. For example, in a competitive market for broker dealers, if a broker does not offer
a particular security the investor desires, investors will move assets and invest with a broker
dealer that does offer trading in that security.
379. In the short run, however, an investor is generally locked into broker dealers that
they already invest with.
380. Generally, the process to open a trading account with a broker dealer takes a short
amount of time, typically several days. Depending on the type of account, the waiting period
may be longer or shorter. For example, opening a cash account typically takes a shorter amount
of time than opening a margin account or options account because a broker dealer may require
additional levels of proof of financial solvency such as a credit score check.
381. If the coordinated activity however occurs in a short time window, investors have
no opportunity to switch or change broker dealers, and are investing without market power.
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382. Even those Retail Investors who had accounts with different broker dealers may
have been precluded from purchasing the Relevant Securities as a result of the coordinated
conduct without any ability to purchase the Relevant Security of their choice.
383. In a competitive market, Retail Investors with accounts in different broker dealers
could simply purchase a security with another broker dealer that did not restrict trading.
384. Indeed, Retail Investors may have accounts with multiple broker dealers for a
variety of reasons, including the selection of securities available to trade in.
385. If, however, multiple broker dealers restrict trading at exactly or near exactly the
same time, even those Retail Investors with accounts at multiple brokerages would be restricted
from purchasing the security they desire.
386. The Market is Opaque Rather than Transparent. While the financial markets are
generally regulated, important aspects of it are opaque and render the market susceptible for
collusion.
387. For example, it is generally impossible to know who owns a short interest at any
given time despite the prevailing regulatory regime.
388. While it is possible that a large investor may publicly disclose its present short
positions, it would be unusual as it would give competitors an insight into their strategy. Also,
because there is no way to verify if that were truly the short position the investor had at that
moment, it could just as well be disinformation.
389. Investment managers who have at least $100 million in assets under management
are required by the SEC to file a Form 13F every quarter. Congress created the 13F requirement
in 1975 with the intention of providing investors transparency into the holdings of the U.S.’s
institutional investors.
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390. Notwithstanding Congress’s intent to provide transparency to investors and the
public, these reporting requirements are significantly unregulated and subject to abuse. Form 13F
filings have earned a reputation for being unreliable. Indeed, a 2010 SEC Report titled “Review
of the SEC’s Section 13(f) Reporting Requirements” found that “no SEC division or office
regular or systemic review of the data filed on Form 13F” and that “no SEC division or office
monitors the Form 13F filings for accuracy and completeness.” The SEC found that, “[a]s a
result, many Forms 13F are filled with errors or problems, which may not be detected or
corrected in a timely manner.”
391. Another issue with Form 13F filings is that disclosures are limited. Investors are
only required to report long positions, and put and call options, but not short positions.
392. Because Form 13F filings do not require disclosure of short positions, Form 13F
filings can paint a misleading picture as some investment firms generate most of their returns
from short selling while using long positions as “hedges.”
393. A “hedge” is an investment made with the intention of reducing the risk of
another investment. For example, an investor with a large short position in a particular security
may hedge by taking an offsetting or opposite position in a related or the same security. Hedging
can also be accomplished through the use of derivative securities such as options.
394. Another issue with Form 13F filings is the temporal scope of the require
reporting. 13F filings may be filed up to 45 days after the end of a quarter. As a matter of
practice, 13F filings are submitted as late as possible. 13F filings, however, do not require
reporting of when a particular position was purchased. Therefore, a reported position could have
been purchased at any time within the four months prior to the filing.
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395. Additionally, if a 13F filing reports purchases of put or call options, there is no
requirement to report the strike price or the expiry date, i.e., the price at which an option can be
exercised and the date the option contract becomes invalid respectively.
396. FINRA also requires member firms to report short interest positions in all equity
securities twice a month. Reporting is typically on the 15th and the last day of each month with
an adjustment to the previous business day if those days themselves do not fall on a business day.
397. Even though FINRA publishes short interest reports publicly, as a general matter,
it takes several days before the information is published and the number of shares sold short in
the market may have changed dramatically.
398. Further, the FINRA reports do not account for smaller intervals of time. Dramatic
changes in short interest may occur within a particular window and not be captured in the
regularly required report.
399. Generally, it is not possible to ascertain which investor has a short position in a
particular security at any particular time unless the position is voluntarily publicly disclosed by
the holder of the short position. Unsurprisingly, very few investors voluntarily disclose their
short positions.
400. Although it is not possible to detect which specific investors are in large exposed
short positions, the companies issuing affected securities are aware and can (and sometimes do)
confirm if their stock has been significantly shorted or had been subject to a short squeeze.
401. For example, in GameStop Corp.’s Form 10-K filed March 23, 2021, GameStop
Corp. specifically identified a “short squeeze” as a potential risk factor. Further, GameStop Corp.
disclosed that it experienced a short squeeze and that a large proportion of its stock had been sold
short.
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A large proportion of our Class A Common Stock has been and may
continue to be traded by short sellers which may increase the
likelihood that our Class A Common Stock will be the target of a short
squeeze. A short squeeze has led and could continue to lead to volatile
price movements in shares of our Class A Common Stock that are
unrelated or disproportionate to our operating performance or
prospects and, once investors purchase the shares of our Class A
Common Stock necessary to cover their positions, the price of our
Class A Common Stock may rapidly decline.
402. In the wake of the 2008 financial crisis, Congress legislated wide sweeping
reforms designed at increasing transparency and curtailing the abuses within the financial sector
that led to the crisis in the form of the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010.
403. Section 929X of the Dodd-Frank Act, titled “Short Sale Reforms,” empowered
the SEC to promulgate rules providing for the public disclosure of short positions to occur
monthly at a minimum.
404. To date, the SEC has not promulgated rules related to Section 929X.
405. Additionally, Congress placed into Dodd-Frank an antitrust savings clause:
Nothing in this Act, or any amendment made by this Act, shall be
construed to modify, impair, or supersede the operation of any of
the antitrust laws, unless otherwise specified. For purposes of this
section, the term “antitrust laws” has the same meaning as in
subsection (a) of section 12 of title 15, except that such term
includes section 45 of title 15, to the extent that such section 45
applies to unfair methods of competition.
15 U.S.C. § 5303.
Motive to Collude
406. Defendants shared a common motive to conspire—to prevent themselves, and
their peers, from hemorrhaging losses totaling potentially billions of dollars. The Market Maker
Defendants and hedge funds possessed significant short positions in the Relevant Securities
during the period in question. As the prices of the Relevant Securities went up, the exposure of
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the Market Maker Defendants increased, and their losses were potentially infinite if they did not
stop the surge of the Relevant Securities.
407. As of December 31, 2020, Citadel Securities (the market maker), reported $57.5
billion in “securities sold, not yet purchased, at fair value,” which is likely representative of
Citadel Securities’s short position.
408. As Retail Investors bought securities and call options, Citadel Securities
developed a large short position as a function of its market making, i.e., taking the other side of
buy orders or purchased call option orders. As the price of the Relevant Securities increased,
Citadel Securities’s short position became increasingly distressed subjecting to a potential Short
or Gamma Squeeze. Citadel Securities stood to benefit from the one-sided restrictions by taking
the other side of the Retail Investors’ sell orders that resulted from the one-sided sell-only
restrictions placed by the Brokerage and Clearing Defendants. By taking the other side of the sell
orders, Citadel Securities could return the stock it had borrowed to sell short, and benefit from
the rapidly decreasing price of the Relevant Security, mitigating its loss as a result of the Short or
Gamma Squeeze.
409. Citadel Securities stood to gain from stopping the short squeeze by purchasing
new short positions at the peak of the Relevant Security price increase and then profiting from
the artificial decrease in share price after the trading restriction on January 28th. While there is
no publicly available data to show that Citadel Securities was one of the parties that opened up
new short positions on January 25—recall there is no requirement that hedge funds disclose their
short positions except as described above—it would be in Citadel Securities’s best interest to
open up new short positions if Citadel Securities planned to leverage its relationships to halt
trading of GameStop and other Relevant Securities and artificially depress their share price.
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410. Public Form 13F disclosures by market makers such as Citadel Securities reveal
large short positions in Relevant Securities such as GME and AMC that grew substantially from
December 2020 to March 2021. While short positions in stocks, call options and put options are
not disclosed on Form 13F, long positions in put options are disclosed, and long put options
represent short positions on the underlying stock.
411. On Citadel’s December 31, 2020 13F filing, which consolidated Citadel’s
advisory and market making subsidiaries, Citadel disclosed a long put option position on
2,224,500 shares of GameStop stock and a long put option position on 1,749,200 shares of AMC
stock. On Citadel’s March 31, 2021 13F filing, Citadel disclosed that the GameStop long put
option position had grown by almost 50% to 3,271,400 shares and that the AMC long put option
position had grown by 224% to 5,676,200 shares.
412. Further, given Robinhood relies on payment for order flow for revenue, and sold
a significant portion of its order flow to Citadel Securities, the two firms had motive to cooperate
due to their close economic relationship. Indeed, in several internal conversations, high level
executives of Robinhood and Citadel Securities stated the firms had a “strong relationship” and
that the relationship was a “partnership.”
413. The Clearing Defendants, similarly, had reason to participate and join in the
conspiracy. NSCC is a member driven corporation. Member clearing agents report the trades
they receive to their parent organization, the DTCC. The DTCC then ensures the transfer of
money to the seller’s broker account and the transfer of security ownership to the buyer’s broker
account. To mitigate the risk of settling trades, the DTCC requires that NSCC member clearing
firms put up collateral, which the NSCC member clearing firms typically pass down to
brokerages. The DTCC collateral requirement changes depending on the perceived risk of the
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order, since if one side of the trade defaults, and the broker cannot cover the loss, DTCC member
firms are on the hook for completing the trade. In other words, if a member became bankrupt,
DTCC and its member clearing agents would be on the hook for the short positions taken by that
member.
414. On the morning of January 28, DTCC demanded that its member clearing agents
supply additional collateral to support these trades.
415. The collateral demand by DTCC, however, also provided the perfect cover to
progress the scheme. As revealed by internal Robinhood documents, the decision to PCO had
likely already been made before the margin call came.
416. The broker dealers, who position themselves as services for the benefit of
retailers, succumbed to the demands of their clearing agents because of their own financial
interests. Broker dealers receive an inordinate amount of revenue from market makers like
Citadel Securities from payment for order flow.
417. To reiterate, Robinhood makes up a vast majority of its revenue, somewhere
between 60% to 70%, by selling its order flow. Robinhood has reportedly earned a staggering
$331 million in revenues from payment for order flow in the first quarter of 2021, more than
tripling its earnings from the first quarter of 2020, a record year in which Robinhood earned
$687 million in payment for order flow revenue, up 514% year-on-year from 2019. From 2015 to
2016, an incredible 80% of Robinhood’s revenue came from payment for order flow.
Robinhood’s CEO Vladimir Tenev also testified before the Congressional House Committee on
Financial Services that Citadel Securities’s payment for order flow revenue is Robinhood’s
primary source of revenue. This essentially proves that Robinhood’s client is not the retail
investor themselves, but rather Citadel Securities. In this relationship, it is actually the retail
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investor who is Robinhood’s product; the product for which Citadel Securities is in fact buying
and paying Robinhood a premium.
418. As mentioned above, Robinhood is not alone in profiting from payment for order
flow. Every Brokerage Defendant, Apex, and ETC sell order flow. Additionally, Citadel
Securities is either the largest or one of the largest payors for order flow for most of them.
419. Robinhood and other broker dealers had every motivation to join the
anticompetitive scheme to restrict trading to benefit their real clients: the clearing agents and the
Market Maker Defendants. Robinhood has gamified the investing market to funnel young
investors onto their platform, ultimately to offer the Market Maker Defendants a birds’ eye view
of both sides of their trades, enabling companies like Citadel to benefit from simultaneously
making and playing the market.
Actions Against Unilateral Self Interest
420. If broker dealers were competing against one another, then it would not be in
their self-interest to stop trading on their platforms for the Relevant Securities. Broker-dealers
benefit from investors transacting on their platforms. Akin to any individual purchasing from a
seller of a service—the seller benefits from more sales. Delisting the Relevant Securities and
preventing investors from entering more transactions was no different from turning away a
paying customer. Broker dealers acted against their self-interest by preventing any transactions.
421. The actions taken by the clearing brokers, i.e., preventing trades in the Relevant
Securities, was similarly an action against their economic and unilateral self-interest. Clearing
firms such as Apex act as a third party to each trade facilitated by broker dealers. Generally,
clearing firms earn a transaction fee every time they make a trade. The clearing fee is imposed no
matter which brokerage firm the trader uses. By stopping the trades in the Relevant Securities,
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clearing firms turned away the clearing fees that form the very basis of their business models.
This conduct is against the economic interests of the Defendants if undertaken individually.
422. Further, Apex’s decisions on January 28, 2021 were against its self-interest. By
restricting trading and specifically the purchase of the Relevant Securities, Apex was unable to
generate revenue from users purchasing the Relevant Securities shares and Apex thereafter, using
these shares as stock loans to generate even further revenue.
423. Market makers such as Citadel Securities pay broker dealers for order flow.
Payment for order flow is a practice where a broker-dealer (e.g., Robinhood) will sell its
customers’ orders to a high frequency trading firm (“HFT”) or market maker (e.g., Citadel
Securities). The HFT or market maker in turn “fills” the order by buying or selling the shares as
requested, while simultaneously using a computer algorithm to pocket the difference between the
price the customer was willing to sell at versus the price the market maker was able to get to fill
the order.
424. Market makers compare the bid prices (i.e., the price investors are willing to
purchase at) against the offer prices (i.e., the price investors are willing to sell at). The difference
between the two is known as the “spread.” Market makers maintain an inventory of securities
from their own trading and match incoming buy and sell orders in order to fill those orders.
425. Market makers such as Citadel Securities pay a significant premium or “rebate”
to route a broker’s order flow. It stands to reason that routing order flow is a lucrative endeavor
given the significant sums that market makers pay for order flow. Robinhood for example
generated $682 million in payment-for-order flow revenue. All brokerage firms that sell order
flow are required by the SEC to disclose who they sell order flow to. Rule 606 requires broker-
dealers to publish quarterly reports disclosing the entities to which they route their order flows
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and the relationship between the broker-dealer and the entity. Robinhood, for example, receives
$260 per $1,000,000 of their order flow traded, and E*Trade makes about $22 per the same
volume.
426. By restricting trading, any entity that sells its order flow is acting against its
economic interest. As order flow revenue is generated by volume, restricting trading necessarily
diminishes the volume the entity selling order flow may receive for the period that trading is
restricted.
427. As mentioned above, according to public filings, all of the Brokerage Defendants
and Clearing Defendants sell order flow.
428. Likewise, the Market Maker Defendants who pay for order flow and make money
through the spreads benefit from a large volume of transactions. Therefore, any restrictions in
any entity it purchases order flow from would ultimately negatively impact their bottom line as it
would reduce the volume of orders and the number of spreads it can pocket.
429. Finally, trading restrictions were only placed on buying and only affected Retail
Investors because short sellers, such as the Market Maker Defendants, still had the ability to
purchase shares of the Restricted Securities via other avenues, such as dark pools, including the
Market Maker Defendants own internal dark exchanges.
430. Taking at face value Brokerage Defendants’ explanation that they were concerned
with market volatility, it does not justify their one-sided restrictions on the Relevant Securities.
431. Volatility in the securities markets is often associated with large swings in prices
in one direction or another. Volatility is usually characterized by wide price fluctuations and
heavy trading.
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432. There is no provision under SEC, DTCC, NSCC, or FINRA rules that allows
broker-dealers to unilaterally decline, restrict, or prevent trading because market conditions make
executing trading burdensome or unprofitable.
433. Rather, broker-dealers are expected to ensure that they can continue to provide
access to the securities markets even during periods of extreme market volatility.
434. FINRA reiterated this obligation in Regulatory Notice - , which was issued on
March , , directly in response to the events giving rise to this action. FINRA was clear:
“Member firms should maintain strong procedures, thoughtfully crafted in advance, to
reasonably ensure that they can continue to provide investors access to the securities markets
during times of extreme market volatility, as in the past several months.”
435. There are recognized mechanisms by which trading can be halted during
volatility. Exchanges such as NASDAQ have already implemented these mechanisms.
436. For example, exchanges have put in place “circuit breakers” to halt trading in the
event the market is too volatile.
437. Similarly, the Limit Up-Limit Down mechanism is a tool intended to prevent
trades in securities from occurring outside of specified price bands to address extraordinary
market volatility. If trading occurs beyond the established price bands, a five-minute trading
pause is implemented to allow market volatility to smooth. This is also known as a single stock
circuit breaker.
438. In both cases, circuit breakers halts trading entirely, both buying and selling.
439. This is not what Defendants did, however, and instead only restricted purchasing
of securities by Retail Investors.
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440. Further, the restrictions were not placed on the entire market—institutional
investors could still buy and sell without limitations. It makes little economic sense that
restriction on purchasing on only Retail Investors could address volatility concerns when
institutional investors could still affect the market.
Traditional Factors Suggesting Conspiracy or Agreement
441. The conduct at issue here comprised of factors suggesting conspiracy or illegal
agreement.
442. Opportunities to Coordinate and Collude. On or around January 28, 2021,
Defendants had numerous opportunities to coordinate and collude and did, both interfirm and
intrafirm.
443. For example, Apex coordinated the trade restrictions on the Relevant Securities
by verbally informing certain Brokerage Defendants to restrict trading in the Relevant Securities.
444. Webull, for example, confirmed in written submissions to the Congressional
House Committee on Financial Services that the communications between Apex and Webull
regarding which securities would be subject to trading restrictions on January 28, 2021 were
verbal in nature.
445. The industry is close-knit and built on preexisting relationships. The industry is
replete with specialized jargon, terms of art, and specialized terminology, providing those in the
industry a common language.
446. Additionally, individuals within the industry frequently move from one market
participant to another or invest financial resources in other market participants.
447. For example, in April 2021, Bloomberg and other sources reported that Alpaca
added Robinhood’s ex-COO as an investor.
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448. Additionally, , Citadel Securities’s Head of Execution Services, had
prior working relationships through FINRA with Josh Drobnyk, Robinhood’s Vice President of
Corporate Communications during the relevant period.
449. As a result of the close-knit nature of the industry and the prior relationships
developed by those within the industry, there are a high number of interfirm communications
which tend provide opportunities to exchange information and to render a market susceptible to
collusion. Given the events of late 2020 and January 2021, the participants in the conspiracy had
numerous opportunities to conspire to restrain trade—restrict trading and did so.
450. Many of the Brokerage Defendants have prior relationships with the Clearing
Defendants. Robinhood for example previously used Apex as its clearing firm before Robinhood
began self-clearing in 2018.
451. Additionally, documentary evidence reveals numerous suspicious interfirm
communications leading up to, during, and after the imposition of the restrictions on January 28,
2021.
452. For example, high level executives of Citadel Securities and Robinhood
coordinated communications in the weeks before, and numerous times the day before, the
restrictions were ultimately imposed.
453. Additionally, Robinhood’s Drobnyk appeared to accept Citadel Securities’s
proposition made on January 20, 2021.
454. High level employees of E*Trade and Citadel Securities exchanged
communications throughout January 28, 2021 to confirm certain orders were cancelled.
455. Further, high-level employees communicated after January 28, 2021, partly to
coordinate messaging in response to the restrictions and also to enforce continuing restrictions.
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456. For example, Citadel Securities’s connected Citadel Securities’s
and Robinhood’s Drobnyk to coordinate the narrative in response to the January 28, 2021
trading restrictions.
457. Although Apex itself had lifted its restrictions as of January 29, 2021, Apex
warned high-level Robinhood employees of efforts to purchase the Relevant Securities even as
Robinhood was continuing to restrict trading. Apex had no economic justification to warn
Robinhood but to ensure the restrictions were maintained. Any collateral requirements Apex may
have been subjected to would be independent of Robinhood.
458. Further, Apex presently has and at the relevant time period had no economic
relationship with Robinhood. Although Robinhood had previously used Apex as a clearing
broker, Robinhood became self-clearing in 2018.
459. Evidence of Concealment and Pretext. Practices that while not in themselves
illegal may still lead to the inference of the existence of a conspiracy.
460. As noted above, communications and coordination occurred between Defendants
verbally. Verbal or telephonic communication is difficult to detect and does not leave a paper trail
to the alleged wrongdoing leading to an inference that those engaged in verbal coordination were
attempting to conceal their communications. Therefore, the coordination of the trading
restrictions by verbal or telephonic means supports the inference of an illegal conspiracy.
461. Notably, while high-level employees of Citadel Securities and Robinhood
coordinated communications via email or via internal chat channels, the emails appear cryptic
with little indication about the subject matter communicated between the participants, reserving
substantive discussions of their dealings to unrecorded telephone calls. This evidences a
deliberate attempt to obscure the actual substance of the communications.
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462. Additionally, participants attempted to conceal communications by merely
copying lawyers, with no indicia of asking for legal advice.
463. For example, Citadel Securities’s copied internal counsel on emails
sent to Robinhood’s Drobnyk on January 30, 2021, connecting Citadel Securities’s
with Robinhood’s Josh Drobnyk in order to coordinate messaging regarding the restrictions
placed on January 28, 2021.
464. Pretextual statements and explanations also support an inference of an illegal
conspiracy.
465. For example, statements by representatives of Robinhood and high-level
executives provided changing and conflicting explanations for the trading restrictions.
466. On January 28, 2021, Robinhood posted on its blog that market volatility was the
reason for the restrictions.
467. Additionally, Vlad Tenev, Robinhood’s CEO, told the media that the shutdowns
were unrelated to Robinhood’s liquidity and that Robinhood did not have a liquidity problem.
468. Robinhood later blamed the trading restrictions to being unable to meet the
deposit requirements imposed by clearinghouses.
469. When Tenev offered testimony to the House Financial Services Subcommittee,
when asked if Robinhood had negotiated with counterparts to restrict trading in the Relevant
Securities, he stated that trading restrictions were put in place to meet regulatory deposit
requirements imposed by DTCC affiliate NSCC. This explanation, however, is either incomplete
or misleading.
470. To clear and settle customer transactions, each trading day by 10 a.m. Eastern
Time, clearing agents like Robinhood Securities have to meet the deposit requirements required
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by DTCC to support their customer trades between the trade date and the date the trades settle.
On some days clearing brokerage firms may be able to withdraw money, whereas on other days
it may be required to deposit money, depending on that day’s requirement. Clearing brokerage
firms like Robinhood Securities also know that the DTCC may assign a volatility multiplier on
certain securities which the DTCC perceives as having more risk.
471. Based on the orders its customers are placing, Robinhood Securities has the
ability to: (i) monitor its anticipated DTCC deposit requirements in real time (or near real time);
and (ii) monitor its ability to meet anticipated or actual DTCC deposit requirements in real time
(or near real time). Based on the relationship between the affiliated entities, Robinhood Financial
would have access to the same information on anticipated DTCC requirements. At any given
time Robinhood Financial and Robinhood Securities would know how much collateral the
DTCC may ask Robinhood Securities to post to cover the trades its customers have placed.
472. Michael Bodson, the President of DTCC, later stated in testimony to the House
Financial Services Subcommittee that the decision to restrict trading was internal to Robinhood
and DTCC and NSCC did not have discussions about restricting securities.
473. Indeed, Robinhood’s decision to move the Relevant Securities to “position
closing only” (“PCO”), i.e., only allowing users to sell but not buy, was made extraordinarily
quickly.
474. While Robinhood received an approximately $3 billion dollar margin call email
from DTCC at 5:11 a.m., the decision to affect the PCO was made shortly after the receipt of the
email. It is highly unlikely that the decision to move securities to PCO in such a short time span
without premeditation.
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475. Further, internal Robinhood communications indicated that Robinhood personnel
knew shortly after the margin call that “all firms” “are doing the same thing,” i.e., restricting
buying but not the selling of the Relevant Securities.
476. Additionally, internal Robinhood communications seems to contradict Tenev’s
public statements that Robinhood did not have liquidity issues.
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477. As shown, Tenev’s testimony was, at best, misleading.
478. Pretextual statements were not limited to Robinhood. Apex and its highly level
executives also made pretextual statements.
479. For example, on January 28, 2021, Apex cited increasing collateral requirements
for the restrictions it imposed on trading including through other Brokerage Defendants.
480. Later, on February 9, 2021, in its letter to the New Jersey Office of the Attorney
General, Apex stated that trading restrictions were not due to any actual increased collateral
requirements imposed by the NSCC, but rather “potential” future collateral requirements that
may be imposed.
481. In addition, on March 4, 2021, Apex’s President, Tricia Rothschild stated that
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Apex restricted “due to anomalous information.” Additionally, she stated that “We [i.e., Apex]
have headroom in terms of the capital available to us on our balance sheet. We have lines of
credit that we can call on as needed.” Ms. Rothschild further said “I would say it was not a
similar situation to Robinhood.” Taken at face value, Ms. Rothschild’s statements meant that
Apex was not faced with a collateralization problem, yet restricted trading nonetheless.
482. Beyond statements, the opaque nature of the market as described above serve to
conceal evidence of the illegal agreement.
483. Because of the temporal nature of the reporting requirements, short sellers are
able to take advantage of reporting gaps to disguise collusive behavior. Participants in the illegal
conspiracy were able to exit their short positions and are only required to report periodically
without having to report the suspect transactions individually.
484. Further, because what reporting there is only identifies aggregate short interest
and not by particular investor or market maker, individual anticompetitive conduct is hidden
from view.
485. Additionally, because much of the trading in the Relevant Securities recurred on
so-called “dark” pools or markets, and in particular the Market Maker Defendants’ own internal
dark market maker units, participants in the illegal scheme are able to mask the suspect
transactions. Because dark pools and dark markets are not directly accessible to the public and
“lit” exchanges provide for anonymous trading, participants in the illegal scheme were able to
transact without tipping off retail investors about who the trader is, the size of the blocks being
traded, or even the execution price of the trade.
486. Government Investigations. The conduct at issue has not escaped the eyes of
government actors and are the subject of several investigations. Government investigations are
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indicative of anticompetitive collusion.
487. The Congressional House Financial Services Committee issued subpoenas and
held three highly publicized hearings related to the trading restrictions imposed on January 28,
2021.
488. In addition to proceedings in the House of Representatives, the Senate Banking
Committee also held hearings related to the trading restrictions.
489. According to The Wall Street Journal and public filings, the fraud division of the
Department of Justice and the San Francisco U.S. Attorney’s office have sought information
about the restrictions imposed on January 28, 2021 from brokers and social media companies.
490. The SEC appears to be investigating the restrictions imposed on January 28,
2021. On June 9, 2021, GameStop Corp. reported in its 10-Q report that “On May 26, 2021, we
received a request from the Staff of the SEC for the voluntary production of documents and
information concerning a SEC investigation into the trading activity in our securities and the
securities of other companies. We are in the process of reviewing the request and producing the
requested documents and intend to cooperate fully with the SEC Staff regarding the matter. This
inquiry is not expected to adversely impact us.”
491. Robinhood’s Focus Report filed with the SEC on February 26, 2021, confirmed
many of these investigations and revealed that Robinhood had received inquiries related to the
trading restrictions from the U.S. Attorney’s Office of the Northern District of California, the
SEC’s Division of Examinations, FINRA, the New York Attorney General’s Office and the
offices of other states’ Attorneys General, e.g., the Attorneys General of Texas and New Jersey,
state securities regulators and from Congress.
492. On or around June 22, 2021, the San Francisco office of the Department of
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Justice issued grand jury subpoenas related to the trading restrictions on or around January 28,
2021 as described herein.
493. Finally, on June 30, 2021, FINRA announced that Robinhood was ordered to pay
a record financial penalty of $70 million for “systemic supervisory failures and significant harm
suffered by millions of customers.” According to FINRA, “the sanctions represent the largest
financial penalty ever ordered by FINRA and reflect the scope and seriousness of the violations.”
CLAIMS FOR RELIEF
COUNT ONE
CONSPIRACY TO RESTRAIN TRADE
IN VIOLATIONOF SECTION 1 OF THE SHERMAN ACT,
15 U.S.C. § 1
(Against all Defendants)
494. Plaintiffs hereby incorporate by reference the factual allegations as set forth
above.
495. The Defendants conspired and entered into an anticompetitive scheme to fix,
raise, stabilize, maintain or suppress the price of the Relevant Securities, and in order to restrain
trade.
496. Faced with potentially disastrous losses due to their short positions, the Market
Maker Defendants, rather than engage in competition or the ordinary activities of the market,
conspired, combined, agreed and colluded with the Brokerage Defendants and Clearing
Defendants to restrict purchases in stocks by retailer investors and to manipulate and artificially
suppress the price of stock, through which they could cover their short positions.
497. Defendants conspired and agreed with one another with the intent to artificially
lower the price of the relevant stocks.
498. Defendants coordinated a collective shutdown of the stock brokerage market with
respect to the Relevant Securities, prohibiting market participants with the exception of
institutional investors such as the Market Maker Defendants from purchasing stock in the
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Relevant Securities. Pursuant to the conspiracy, the restriction of stock purchases resulted in a
sell-off of stocks, driving down prices in the Relevant Securities to levels that would not have
been obtained, but for the conspiracy, combination, agreement and restraint of trade.
499. In furtherance of the conspiracy, combination, agreement and restraint of trade,
before and before the opening of the stock market on January 28, 2021, the Market Maker
Defendants increased short volumes in anticipation of short calls on January 28, 2021.
500. In furtherance of the conspiracy, combination, agreement and restraint of trade,
the Brokerage Defendants prohibited or unreasonably restricted the purchases of shares of the
Relevant Securities by Plaintiffs in restraint of trade.
501. As a direct and intended result of Defendants contract, combination, agreement
and restraint of trade or conspiracy, Defendants caused injury to Plaintiffs by restricting
purchases of Relevant Securities. The Brokerage Defendants deactivated the buy option on their
platforms and left Plaintiffs with no option but to sell shares of the stocks on their platforms.
Plaintiffs and Class members, faced with an imminent decrease in the price of their positions in
the Relevant Securities due to the inability of Retail Investors to purchase shares, were induced
to sell their shares in the Relevant Securities at a lower price than they otherwise would have, but
for the conspiracy, combination, agreement and restraint of trade. Additionally, Class members
that would have purchased more stock in the Relevant Securities given the upward trend in price
could not do so.
502. The Brokerage Defendants, in particular those who self-clear, disguised their
wrongdoing by offering pretextual explanations for the restrictions, claiming they were subject to
increased collateral requirements, when in reality the decision to restrict had already been made.
503. Pursuant to the contract, combination, agreement, conspiracy and restraint of
trade, the Brokerage and Clearing Defendants continued to route sell orders to the Market Maker
Defendants to purchase stocks at the artificially deflated prices to reduce their distressed short
positions. The Market Maker Defendants, who were in exposed short positions due to the short
and gamma squeeze, purchased the artificially price-suppressed stocks to cover their short
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positions and concealed their activity by using off-exchange trading, including their own internal
dark market maker units.
504. To induce compliance and to limit the effects other Brokerages could have in
disrupting Defendants’ anticompetitive scheme, the Clearing Defendants raised the fees and/or
removed the ability to fill purchases of the Relevant Securities to the brokerages that clear
through them, further facilitating the Market Maker Defendants covering of their short positions
in furtherance of the conspiracy.
505. Defendants’ anticompetitive and unlawful conduct is per se illegal.
506. As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
Class members were injured in their business and property.
507. Plaintiffs and the Class further seek equitable relief pursuant to Section 16 of the
Clayton Act, 15 U.S.C. § 26, and other applicable law, to correct the anticompetitive effects
caused by Defendants’ unlawful conduct.
PRAYER FOR JUDGMENT
WHEREFORE, Plaintiffs request that the Court enter judgment on their behalf and on
behalf of the Class defined herein, by adjudging and decreeing that:
a. This action may proceed as a class action, with Plaintiffs serving as Class
Representatives, and with Plaintiffs’ counsel as Class Counsel;
b. Defendants have contracted, combined, and conspired in violation of Section 1 of
the Sherman Act, 15 U.S.C. § 1, and that Plaintiffs and the Class have been injured in their
business and property as a result of Defendants’ violations;
c. Plaintiffs and the Class are entitled to pre-judgment and post-judgment interest on
the damages awarded them, and that such interest be awarded at the highest legal rate from and
after the date this class action complaint is first served on Defendants;
d. Defendants are to be jointly and severally responsible financially for the costs and
expenses of a Court-approved notice program through post and media designed to give
immediate notification to the Class;
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e. Plaintiffs and the Class recover their costs of this suit, including reasonable
attorneys’ fees as provided by law;
f. Plaintiffs and the Class are entitled to equitable relief appropriate to remedy
Defendants’ past and ongoing restraint of trade, including:
1) A judicial determination declaring the rights of Plaintiffs and the Class,
and the corresponding responsibilities of Defendants;
2) A constructive trust over any ill-gotten property or assets, including but
not limited to stocks in the Relevant Securities received as a result of the
conspiracy or agreement or other wrongful conduct as alleged herein;
g. Plaintiffs and the Class receive such other or further relief as may be just and
proper.
JURY TRIAL DEMANDED
Pursuant to Federal Rule of Civil Procedure 38(b), Plaintiffs demand a trial by jury of
all the claims asserted in this Complaint so triable.
Dated: September 21, 2021
By: /s/ Joseph R. Saveri By: /s/ Frank R. Schirripa
Joseph R. Saveri Frank R. Schirripa
Joseph R. Saveri (CA SBN 130064) Frank R. Schirripa (NY SBN 4103750)
Steven N. Williams (CA SBN 175489) Kathryn Hettler (NY SBN 5126065)
Christopher K.L. Young (CA SBN 318371) Seth Pavsner (NY SBN 4969689)
Anupama K. Reddy (CA SBN 324873) Eugene Zaydfudim (NY SBN 5204334)
JOSEPH SAVERI LAW FIRM, LLP HACH ROSE SCHIRRIPA & CHEVERIE LLP
601 California Street, Suite 1000 112 Madison Ave, 10th Floor
San Francisco, California 94108 New York, New York 10016
Telephone: (415) 500-6800 Tel: (212) 213-8311
Facsimile: (415) 395-9940 fschirripa@hrsclaw.com
jsaveri@saverilawfirm.com khettler@hrsclaw.com
swilliams@saverilawfirm.com spavsner@hrsclaw.com
cyoung@saverilawfirm.com ezaydufim@hrsclaw.com
areddy@saverilawfirm.com
Co-Lead Counsel for the Antitrust Tranche
135
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