Consolidated Class Action Complaint (Federal Securities Laws) — In re January 2021 Short Squeeze Trading Litigation (Dkt. 446, S.D. Fla.)

Summary

The Consolidated Class Action Complaint in In re: January 2021 Short Squeeze Trading Litigation, Case 1:21-md-02989-CMA (Case No. 21-2989-MDL-ALTONAGA/Torres, Document 446, 75 pages), in the U.S. District Court for the Southern District of Florida, entered November 30, 2021, relating to All Actions Involving the Federal Securities Laws. Lead Plaintiff Blue Laine-Beveridge and named Plaintiffs including Abraham Huacuja, Ava Bernard, Brandon Martin and Brendan Clarke sue Robinhood Markets, Inc. and two of its wholly owned subsidiaries on behalf of a class. The complaint pleads market manipulation claims under the Securities Exchange Act in Counts I and II.

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Date: 2021-11-30

Cite this document

“Consolidated Class Action Complaint (Federal Securities Laws) (Dkt. 446).” Original at archive.org, dated 2021-11-30. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2021-11-30-covid-era-misc-82fc7643-1/, SHA-256 82fc7643919e3e8f43e56e6b3652688ea2c40418613d83d1b072d2a85f0f6cdc.

Full text

Case 1:21-md-02989-CMA Document 446 Entered on FLSD Docket 11/30/2021 Page 1 of 75

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 Actions Involving the Federal Securities Laws

CONSOLIDATED CLASS ACTION COMPLAINT
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Lead Plaintiff Blue Laine-Beveridge, named Plaintiffs Abraham Huacuja, Ava Bernard,

Brandon Martin, Brendan Clarke, Brian Harbison, Cecilia Rivas, Garland Ragland Jr., Joseph

Gurney, Santiago Gil Bohórquez, and Trevor Tarvis (collectively “Plaintiffs”), individually and

on behalf of all other persons similarly situated, by Plaintiffs’ undersigned attorneys, for Plaintiffs’

Consolidated Class Action Complaint against defendants Robinhood Markets, Inc. and two of its

wholly owned subsidiaries, Robinhood Financial, LLC and Robinhood Securities, LLC (unless

otherwise noted, collectively “Robinhood” or the “Robinhood Defendants”) alleges the following

based upon personal knowledge as to Plaintiffs and Plaintiffs’ own acts, and information and belief

as to all other matters, based upon, inter alia, the investigation conducted by and through their

attorneys, which included, among other things, a review of the statements made by defendants and

their senior management, SEC filings, court records, Congressional testimony, administrative

proceedings, and information readily obtainable on the Internet. Plaintiffs believe that substantial

evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for

discovery.

SUMMARY OF THE ACTION

1. This is a class action on behalf of persons or entities who held common stock in

AMC Entertainment Holdings, Inc. (“AMC”), Bed Bath & Beyond Inc. (“BBBY”), BlackBerry

Ltd. (“BB”), Express Inc. (“EXPR”), GameStop Corp. (“GME”), Koss Corp. (“KOSS”), Tootsie

Roll Industries Inc. (“TR”), or American Depositary Shares of foreign-issuers Nokia Corp.

(“NOK”) and trivago N.V. (“TRVG”) (collectively “the Affected Stocks”) as of the close of

trading on January 27, 2021, and sold such shares at a loss between January 28, 2021, and February

4, 2021 (the “Class”). Excluded from the class are the defendants, the officers and directors of

defendants, members of their immediate families and their legal representatives, heirs, successors

1
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or assigns and any entity in which defendants or any excluded persons have or had a controlling

interest.

2. The heroic outlaw depicted in the legend of Robin Hood stole from the rich to give

to the poor. Eager to invoke that “stick it to the Man” allusion, the story that Robinhood repeatedly

tells the public is that it is a revolutionary disruptor: By putting the power to trade into the hands

– and fingertips – of a new generation of investors via its mobile app, Robinhood claims to have

democratized access to financial markets by breaking Wall Street’s stranglehold on the means to

accumulate wealth. Alas, this too is a fairy tale.

3. Far from being feisty outsiders enabling ordinary people to build stock portfolios,

Robinhood’s founders transitioned their business model from selling sophisticated software

platforms to hedge funds and other high-frequency traders (“HFTs”), which allowed these

automated traders to profit from front-running ahead of other traders, to the much more lucrative

business of selling to various HFT market makers the orders placed by a subset of those other

traders – the unsuspecting neophytes that represent the majority of Robinhood’s customers.

4. The events of late January and early February 2021 do not tell the story of how

disruptive technology empowered investors but, rather, about how a selective denial of access to

that technology for more than a week wiped out tens of billions of dollars of investors’ equity. As

set forth in detail below, Robinhood’s actions were unique among retail brokers:

• Robinhood, and only Robinhood, halted trading and/or restricted purchases and/or
holdings of multiple stocks for more than a single trading session – January 28th –
extending some of its restrictions for six trading sessions, through February 4th
• On January 29th, when other retail brokers had already removed any share
purchasing restrictions in force on January 28th, Robinhood increased the number
of issuers subject to restrictions – from 13 to 23 to 50 – and did not limit the issuers
affected to so-called “meme stocks”, ultimately including Starbucks and General
Motors

2
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• On January 29th, Robinhood reduced the number of shares a customer could
purchase and hold in various issuers multiple times over the course of a single
trading session, causing price declines in the market prices of those stocks in the
wake of those restrictions
• Even after raising a $3.4 billion capital cushion against the risk of unsettled
positions in its portfolio, Robinhood slowly released its restrictions over the course
of the trading week to avoid a repeat of the price rebound on January 29th that
Robinhood actively tamped down with its additional restrictions

5. Robinhood’s singular actions distorted the prices of the Affected Stocks for more

than a week because of its domination of the online retail brokerage industry. Robinhood, which

claims to have opened nearly 50% of all retail brokerage accounts in the past five years, 1 boasted

an industry-leading 12.5 million online accounts by the end of 2020 and added another 3 million

during the month of January 2021. By one estimate, approximately 4% of all shares traded in the

U.S. in January 2021 were traded on the Robinhood app. 2

6. With its brazen behavior – picking and choosing over six trading sessions not only

which stocks its customers could purchase but also the total amount of shares in a particular issuer

a customer could hold – Robinhood thumbed its nose at the bedrock principle of our free-market

economy: the price of a stock is set by the law of supply and demand, unfettered by external

controls.

7. Only in rare instances of extreme price volatility, and in accordance with a SEC-

regulated plan, would all trading be halted in a particular issuer, and even then for only a few

minutes at a time. By completely shutting down, initially, and later restricting, the demand side of

the equation for the nine Affected Stocks in the accounts of more than 15 million very active

1
Robinhood Markets, Inc. S-1, filed July 1, 2021, at 2.
2
Caitlin McCabe, “It Isn’t Just AMC. Retail Traders Increase Pull in the Stock Market,” The
Wall Street Journal (June 18, 2021).

3
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traders, 3 for days rather than just minutes, Robinhood unlawfully manipulated market prices for

the Affected Stocks.

8. Although it was relatively unknown to a national audience before January 28, 2021,

Robinhood’s name was on everyone’s lips after it roiled the markets for the Affected Stocks

through the unique and extreme actions it took that day. Not only were there immediate calls for

government investigations, and questions raised about whether Robinhood colluded with hedge

funds and market makers to stop an alleged short squeeze by retail investors (Robinhood’s own

customer base), but the impact that this single online broker had on the markets suddenly

demonstrated Robinhood’s significant market power.

9. Apparently, the adage “no publicity is bad publicity” is true. Despite being

pilloried by many in government and in the press, online, and over the airwaves, Robinhood

became a venture capital darling overnight. By February 1st, only four days after its severe

undercapitalization almost caused Robinhood to close its doors as a result of a major liquidity

crisis, Robinhood had raised $3.4 billion in 96 hours – significantly more that it had raised in the

eight years since its founding. One of those lining up to inject capital saw Robinhood’s new

customer metrics and concluded: “Robinhood is still the only game in town.” While the national

exposure delivered a critical funding boost that propelled Robinhood to its initial public offering

(“IPO”) in the summer of 2021, Class period investors, many of whom did not trade on the

Robinhood app, were left with staggering losses.

3
In the first quarter of 2020, Robinhood customers traded nine times as many shares as online
retail broker E*Trade’s customers and 40 times the number of shares traded by the customers of
Charles Schwab. See Nathaniel Popper, “Robinhood Has Lured Young Traders, Sometimes With
Devastating Results,” The New York Times (July 8, 2020, last updated Sept. 25, 2021). The
numbers are even more skewed with respect to risky options trading.
4
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10. Questions raised in the aftermath of the events described herein – who made money,

who lost money, was there collusion, who is to blame, how can we prevent a recurrence – have

been (and continue to be) the subject of Congressional hearings, several state investigations, at

least one Securities and Exchange Commission Staff investigation, and countless news reports and

articles. A spate of lawsuits pending before this Court arising from these events allege state law

claims and federal antitrust claims against Robinhood and others. One argument raised by the

defendants in the antitrust cases is that the actions complained of come under the purview of the

federal securities laws. 4 Indeed they do.

11. At the 2014 LAUNCH Festival in San Francisco, Robinhood Markets CEO

Vladimir Tenev challenged the supposition that “brokerages exist for the purpose of making

money,” claiming instead: “The purpose of Robinhood is to make buying and selling stocks as

frictionless as possible. So, if we make money as a side effect of that, you know, that’s great but

it will never be at the cost of introducing frictions between our customers and the markets.”

(Emphasis supplied.) From January 28th through February 4th substantial frictions between its

customers and the markets were the very cost Robinhood forced its customers, and consequently

other investors, to bear so that Robinhood’s founders and early investors could make a lot of money

in its upcoming IPO. These actions defrauded investors in violation of the Exchange Act of 1934.

12. Throughout 2020 and in January 2021, Robinhood whipped up a frenzy of trading

and then shut it down, unevenly reopening the demand spigot over the course of a week, directly

affecting the markets’ bid-offer pricing mechanism for the Affected Stocks. As set forth in greater

4
Defs.’ Motion to Dismiss the Antitrust Tranche Complaint and Incorporated Memorandum of
Law at 33-38. (Dk. 408). Defendants’ “either/or” argument is puzzling; multiple laws may be
violated by the same course of conduct.
5
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detail below, with a lucrative IPO already being planned, Robinhood manipulated the share prices

of the Affected Stocks to avoid liquidation due to an inability to pay its core charges and excess

net capital charges to the NSCC:

(a) On January 28th, only a combination of disabling the “buy” button for eight

(soon thereafter, 13) stocks and the NSCC waiving the excess capital premium charge –

more than $2.2 billion of the $3.7 billion deposit requested that day – temporarily solved

what Robinhood Markets’ COO described as a “major liquidity issue”. However, the

NSCC only used its discretion to waive excess capital premium charges until February 1st,

the two days it took transactions from January 27th and January 28th to clear.

(b) On January 29th, when all other brokers lifted stock purchase restrictions

and Robinhood started to do the same, the prices of the Affected Securities rebounded so

strongly that Robinhood – which had only raised capital of $1 billion on January 28th –

realized that it would be unable to meet an excess capital premium charge on February 2nd

for the trading on its platform on January 29th and could once again face a major liquidity

issue. For this reason, at several points throughout the trading day Robinhood – the only

retail broker still restricting stock purchases – not only tightened the purchase restrictions

(with some issuers down to just one share) but increased the number of issuers to which

restrictions applied from 13 to 23 to 50.

which could prevent the NSCC from assessing steep excess capital premium charges for

the January 29th transactions. At that point, Robinhood started the process of easing

purchase restrictions, a process it dragged out over several days so that Robinhood could

avoid a sharp increase in risk in its unsettled portfolio akin to what it had experienced on

6
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January 29th when its partial lifting of restrictions caused an upward price spike in the share

prices of the Affected Stocks.

13. Robinhood knew the prices of the Affected Stocks would plummet because of its

purchase restrictions:

(a) As early as January 23rd, Robinhood executives were analyzing the impact

of making margin calls on its customers with respect to their GameStop positions. They

knew that their customers – most of who were just starting on their investment journey –

would not have the funds to meet the margin calls, which could force Robinhood to close

out their positions potentially exposing Robinhood to financial risk.

(b) On January 26th, when the President and COO of Robinhood Securities, a

30-year industry veteran, alerted others that Robinhood Securities was moving GameStop

to 100% margin the next day, he started his communication with the statement “I sold my

AMC today.” This seasoned securities industry executive was well aware (and informed

the others with his statement) that the result of the Robinhood’s introduction of frictions

between its customers and the markets – be it a margin call or a total inability to purchase

shares – would be a sharp decline in the price of the stocks subjected to the restrictions.

14. Throughout the week it was artificially distorting the price of the Affected Stocks

Robinhood went to great lengths to convince investors that was not what was occurring. On

multiple occasions, Robinhood falsely assured investors that the national exchanges were free of

manipulation, to wit, that Robinhood’s actions were the same as its peers and simply part of any

retail broker’s “normal operations.” Robinhood even went as far as to blame our national markets’

failure to implement a real-time settlement system – something the CEO of the Depositary Trust

& Clearing Corporation testified would be unworkable and deprive financial markets of liquidity

7
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– rather than its massive undercapitalization for the actions it took to distort the markets. These

representations were patently untrue – and Robinhood knew it.

15. The frictions between its customers and the markets introduced and maintained by

Robinhood during the Class period, to ensure that its upcoming IPO was not derailed by a liquidity

crisis, are against the law. Tenev later rationalized Robinhood’s actions by claiming, during a

discussion with Dave Portnoy of Barstool Sports, that “[i]f Robinhood ceases to exist,” that would

have caused more harm. Thus, Tenev reasoned, “protecting the firm and protecting the system,

ultimately, that was the best thing for customers.” Even if Tenev were correct, unlawful actions

undertaken to ensure the survival of a company do not get a free pass under our nation’s federal

securities laws.

16. While our sympathies may lie with a lawbreaker such as the legendary Robin Hood,

who acted with a noble purpose, Robinhood’s greed must be met with justice for the investors it

harmed.

JURISDICTION AND VENUE
17. The claims asserted herein arise under and pursuant to Sections 9(a) and 10(b) of

the Exchange Act and Rule 10b-5 promulgated thereunder.

18. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. § 1331, and Section 27 of the Exchange Act (15 U.S.C. §78aa).

19. Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b) and Section

27 of the Exchange Act (15 U.S.C. § 78aa(c)) because defendants conduct business in this District

and caused damages within this District. In addition, venue is proper in this District because the

Judicial Panel for Multidistrict Litigation determined that the actions that are before this Court

should be centralized in this District pursuant to 28 U.S.C. § 1407.

8
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20. In connection with the acts, conduct and other wrongs alleged in this complaint,

defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

including but not limited to, the United States mails, interstate telephone communications and the

facilities of national securities exchanges.

PARTIES
21. Blue Laine-Beveridge, appointed by the Court as Lead Plaintiff (Dk. 420), owned

shares of AMC and NOK at the close of the markets on January 27, 2021, and sold AMC shares

on Robinhood’s trading platform on February 3, 2021, and was economically damaged thereby.

22. As set forth in detail in their certifications attached as Exhibit A hereto, plaintiffs

Abraham Huacuja, Ava Bernard, Brandon Martin, Brendan Clarke, Brian Harbison, Cecilia

Rivas, Garland Ragland Jr., Joseph Gurney, Santiago Gil Bohórquez, and Trevor Tarvis each

owned shares of one or more of the Affected Stocks at the close of the markets on January 27,

2021, and sold those shares at a loss on one or more days during the period from January 28, 2021,

to and including February 4, 2021, and were economically damaged thereby. Many, but not all,

of the Named Plaintiffs traded on the Robinhood platform.

23. Defendant Robinhood Financial, LLC (Robinhood Financial) is a brokerage

company providing online and mobile application-based discount stock brokerage services that

allow users to invest in publicly traded companies and exchange-traded funds. Robinhood

Financial, LLC’s business address is 85 Willow Road, Menlo Park, CA 94025.

24. Defendant Robinhood Securities, LLC (Robinhood Securities) is registered as a

broker-dealer with the SEC. Robinhood Securities, LLC acts as a clearing broker and clears trades

introduced by its affiliate Defendant Robinhood Financial. Robinhood Securities, LLC’s business

address is 500 Colonial Center Parkway, Suite 100, Lake Mary, FL 32746.

9
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25. Defendant Robinhood Markets, Inc. is the corporate parent of defendants

Robinhood Financial LLC and Robinhood Securities, LLC, both of which are wholly owned

subsidiaries of Robinhood Markets. Robinhood Markets, Inc.’s business address is 85 Willow

Road, Menlo Park, CA 94025.

26. Robinhood Markets and its wholly owned subsidiaries operate as one entity, and

they are treated as one entity in Robinhood Markets’ IPO Registration Statement. See S-1,

Robinhood Markets, at F-7 (“Robinhood Markets, Inc. (‘RHM’, together with its subsidiaries,

‘Robinhood,’ the ‘Company,’ ‘we,’ or ‘us,’)”. The S-1 explains that “[t]he consolidated financial

statements include the accounts of RHM and its wholly-owned subsidiaries. All intercompany

balances and transactions have been eliminated.”). Id. at F-8. The S-1 also describes Robinhood

Markets and its subsidiaries as a “Vertically Integrated Platform.” Id. at 6.

27. Robinhood Financial and Robinhood Securities are single member, limited

liability companies, with all tax effects of income or loss included in the tax returns of their parent,

Robinhood Markets.

28. Robinhood Markets, Robinhood Financial and Robinhood Securities acted jointly

in the market manipulation that is alleged herein. See id. at 41 (explaining that “we temporarily

prevented our customers from purchasing certain specified securities”) (emphasis added).

29. Unless specified, the named defendants are collectively referred to herein as the

“Robinhood”.

SUBSTANTIVE ALLEGATIONS

Background

30. In 2011, Robinhood founders Vlad Tenev and Baiju Bhatt owned and operated

Chronos Research, a company that developed backend trading technology which increased the

10
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speed of trade execution. That summer, the company introduced Zardoz, software platforms that

lowered tick-to-trade 5 latencies to either five microseconds or fifteen microseconds. Chronos

Research’s products were created to enable hedge funds and other HFTs to use speed to obtain a

trading advantage over those without such high-end technology. In fact, HFTs are known to front-

run other traders and to exploit differences in the bid-ask spreads across multiple exchanges.

31. Several months later, purportedly inspired by the Occupy Wall Street protests,

Bhatt and Tenev conceived the idea for Robinhood – a company whose stated mission is to

democratize investing by providing access to financial markets at no cost to its customers. In

1973, sculptor and videographer Richard Serra coined the phrase “if something is free, you’re the

product.” Although most of Robinhood’s revenues came from selling customer orders to HFT

market makers – the same firms for whom Chronos Research’s products were designed – for

much of its short life, Robinhood had gone to great lengths to hide that fact.

32. Although it is now widely known that Robinhood’s revenues come from routing

its customers’ orders to a handful of market makers for execution – a practice known as “payment

for order flow” (“PFOF”) – a December 17, 2020, SEC Cease-and-Desist Order imposing a $65

million civil penalty exposed how Robinhood Financial had methodically altered its public

disclosures about PFOF for a number of years, with each adjustment moving farther away from

the truth:

(a) Before the app launched, Robinhood had disclosed PFOF as a source of

5
For HFTs, whose trades are automated, “tick-to-trade” is the response time between receiving a
market “tick” (a price movement in the market, either an uptick or a downtick) presenting the
opportunity to the algorithm and processing the buy or sell order.

11
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revenue in its FAQ answer to the question “How does Robinhood make money?”; 6

(b) Apparently concerned about negative publicity surrounding PFOF and

HFTs, by late 2014, PFOF was taken out of the answer to “How does Robinhood make

money?”, a prominent topic on the Robinhood Help Center webpage, and placed

elsewhere. There, Robinhood described PFOF revenue as “indirect” and “negligible” and

stated that PFOF would be moved to the “How does Robinhood make money?” page if

PFOF became a direct or significant source of revenue. 7

PFOF was never disclosed as a revenue source, as had been promised, in the answer on the

“How does Robinhood make money?” FAQ page. To the contrary, at some point during

2016, Robinhood removed all reference to PFOF from its website and even trained those

responding to inquiries that PFOF as a source of revenues was an “incorrect” answer to a

question about how Robinhood makes money. This deception continued through late 2018,

despite PFOF being Robinhood’s largest revenue source. 8

6
In the Matter of Robinhood Fin., LLC, SEC Admin. Proc. File 3-20171, (“SEC C&D Order”)
Finding of Fact No. 15. https://www.sec.gov/litigation/admin/2020/33-10906.pdf.
7
Id. at Finding of Fact Nos. 16-17. Consistent with the SEC’s findings, some time before April
2016, the discussion of PFOF was placed into an article entitled “Order Routing and Exchanges”
that one would have to click through to reach on the “Trading with Robinhood” section of the Help
Center. Toward the bottom of page is the following statement: “Prior to launching the product, we
had some language saying that we intended to generate revenue through PFOF. The reason we
removed this was because currently we execute all of our orders through our clearing partner
APEX Clearing; as a result, Robinhood does not directly receive PFOF and any revenue we
indirectly generate from it is negligible. If we were ever to receive it directly, or if it becomes a
significant source of revenue, we will reintroduce that language into the FAQ.”
(https://web.archive.org/web/20160412113038/https://support.robinhood.com/hc/en-
us/articles/204336175-Order-Routing-and-Exchanges, last accessed November 29, 2021).
8
SEC C&D Order, Finding of Fact Nos. 18, 27, 31-36.
12
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33. The SEC also found that Robinhood Financial knowingly violated its duty of “best

execution” for customer orders by routing trades only to executing brokers that would split the

PFOF 80% to Robinhood and only 20% to price reduction for customers, a reverse of the split

paid to large retail broker-dealers. 9 Not surprisingly, an extensive internal analysis conducted by

Robinhood in March 2019 bluntly concluded: “ ‘[n]o matter how we cut the data, our % orders

receiving price improvement lags behind that of other retail brokerages by a wide margin.’ ” The

SEC continued: “Robinhood further found that the amount of price improvement obtained for

Robinhood customers was far lower than at competing broker-dealers, measured on a per order,

per share, and per dollar traded basis. Senior Robinhood personnel were aware of this analysis.”

Although Robinhood had a Best Execution Committee, from 2016 to 2019 it did nothing to either

assess or address whether Robinhood was breaching its duty of best execution. 10

34. Even though PFOF is banned in other countries because of the inherent conflicts

it poses – including, in addition to a brokerage firm pocketing most of the payment, market maker

front-running and broker inducements to increase customers’ trading frequency 11 – since 1994,

9
Id. at Finding of Fact Nos. 21-23, 27. A September 2018 article on Seeking Alpha first noted key
differences in PFOF payment reporting in SEC Rule 606 filings. Author Logan Kane queried:
“Every other discount broker reports their payments from HFT ‘per share,’ but Robinhood reports
‘per dollar’, and when you do the math, they appear to be receiving far more from HFT firms than
other brokerages. This raises questions about the quality of execution that Robinhood provides if
their true customers are HFT firms.” (https://seekingalpha.com/article/4205379-robinhood-is-
making-millions-selling-out-millennial-customers-to-high-frequency-traders, last accessed
November 29, 2021).
10
SEC C&D Order, Finding of Fact Nos. 29, 30 & 39.
11
Robinhood’s “gamification” of its app to induce frequent trading is under scrutiny by the SEC.
See https://www.sec.gov/rules/other/2021/34-92766.pdf.

13
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the SEC has instead opted for full disclosure of PFOF and adherence to a broker’s duty of best

execution for its customers. As laid out in detail by the SEC, even before the events of late January

and early February 2021 unfolded, Robinhood had already failed its customers spectacularly on

both measures. But the worst was yet to come.

35. During the pandemic lockdown, with stimulus checks in one hand and time on

both hands, large numbers of Americans started to follow the markets and trade for the first time.

The popularity of mobile app-based brokers such as Robinhood exploded among younger, first-

time traders. 12 Social media sites such as the WallStreetBets sub-Reddit and Stocktwit provided

millions of new investors with a platform to discuss investment strategy and the merits of trading

in particular stocks. Not surprisingly, retail trading surged tremendously. On several occasions in

2020, Robinhood’s platform crashed due to the steep increase in trading volume, causing millions

of dollars in investor losses. 13

36. The extent to which novice, retail traders entered the market during the pandemic

was detailed in a recent SEC Staff Report. Notable statistics include:

(a) During 2020, the 60-day moving average of off-exchange market volume,

i.e., trades routed through wholesalers instead of being executed on an established

12
Robinhood, whose investors’ median age is 31, seeks to drive that figure even lower. In
“Robinhood Is Going on a College Tour to Recruit New Customers,” the Wall Street Journal
reported on September 15, 2021, that Robinhood planned to give community college and HBCU
students $15 to sign up, with five lucky customers to receive $20,000 for tuition.

13
Failure to supervise the technology relied upon to provide core broker-dealer services caused
multiple outages, including one for 26 hours on March 2-3, 2020. This is one reason Robinhood
was fined $70 million by the Financial Industry Regulatory Authority (“FINRA”) in June 2021.
See “FINRA Orders Record Financial Penalties Against Robinhood Financial, LLC,” June 30,
2021. (“FINRA Order”) (https://www.finra.org/media-center/newsreleases/2021/finra-orders-
record-financial-penalties-against-robinhood-financial last accessed November 29, 2021).

14
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exchange (deemed to be a proxy for retail trading), increased from 38.4% on March 23 to

46.5% at the end of the 2020, with the single-day percentage exceeding 50% for the first

time on December 23, 2020, at 50.4%. 14

(b) Trading in single option contracts in the 50 most-traded stocks rose from

10% to 14% in a matter of months, with number of contracts trading per day increasing

from 19.6 million in December 2019 to 34.3 million in December 2020. 15

(including “penny” stocks) surged, with a daily average of nearly 50 billion shares,

compared to roughly 14.7 billion shares per day in November 2020, which had been the

most active month over the prior two years. 16

37. This enormous growth in online retail trading corresponded to the destruction of

many of the guardrails established by government entities and by self-regulatory organizations to

protect investors. As explained on its website, FINRA is “authorized by Congress to protect

America’s investors by making sure the broker-dealer industry operates fairly and honestly.” One

rule enacted to protect investors, Rule 2111, sets standards for investment recommendations to

customers, providing, in relevant part:

(a) A member or an associated person must have a reasonable basis to believe
that a recommended transaction or investment strategy involving a security or
securities is suitable for the customer, based on the information obtained through the
reasonable diligence of the member or associated person to ascertain the customer’s

14
SEC “Staff Report on Equity and Options Market Structure Conditions in Early 2021,” at 16 n.
51 (Oct. 14, 2021) (“SEC Staff Report”) (https://www.sec.gov/files/staff-report-equity-options-
market-struction-conditions-early-2021.pdf)
15
Id. at n.52.
16
Id. at n.51.

15
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investment profile. A customer’s investment profile includes, but is not limited to,
the customer’s age, other investments, financial situation and needs, tax status,
investment objectives, investment experience, investment time horizon, liquidity
needs, risk tolerance, and any other information the customer may disclose to the
member or associated person in connection with such recommendation.

38. Because customers trading on the Robinhood platform are self-directed, i.e., not

receiving portfolio management or investment advice from a licensed advisor, Robinhood

insufficiently concerned itself with whether investments were suitable for the customers making

them, only providing some basic financial literacy articles free-of-charge on its customer website.

This paved the way for many of Robinhood’s customers to trade not only in equities, but also in

options, 17 for which Robinhood received a higher PFOF rate. 18 For the month of December 2020,

Robinhood’s Rule 606 report showed PFOF of $1.7 million for trades of S&P 500 stocks and

$52.7 million in PFOF for its customers’ options trading. 19

39. By late 2020, Robinhood was adding new traders at an accelerating pace, increasing

its customer base to 12.5 million funded accounts. In early December, news reports surfaced that

17
FINRA fined Robinhood for relying on “option account approval bots,” without oversight by
the firm principals, to approve thousands of customers whose inconsistent or illogical responses
to the firm’s questions should have disqualified them from trading options. See FINRA Order.
18
S. Kolhatkar, “Robinhood’s Big Gamble: In eliminating barriers to investing in the stock
market, is the app democratizing finance or encouraging risky behavior?”, The New Yorker (May
10, 2021) (“At the end of 2017, Robinhood announced options trading on the platform, making it
available to all but its most inexperienced users. The company received even higher payment-for-
order-flow rates on options than on stocks, and options trading soon became the company’s
largest source of revenue. In options trading, it is easy to quickly rack up enormous losses, and it
has been associated with compulsive behavior.”)
19
Felix Salmon, “Why people love to hate Robinhood,” Axios (Feb. 4, 2021)
(https://www.axios.com/robinhood-lawsuit-gamestop-stocks-90e13174-e459-4212-8f62-
15540b1baf54.html last accessed November 29, 2021).

16
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Robinhood had selected Goldman Sachs to lead its initial public offering in 2021. 20

Chronology of Relevant Events

The Lead-Up to January 28, 2021

40. Although purchases by prominent market players sparked retail investor interest

in some of the Affected Stocks before January 2021, e.g., by November 2020, the former CEO of

online pet-supply giant Chewy.com, Ryan Cohen, had purchased a 9.98% interest in GameStop

and Michael Burry’s Scion Asset Management held a 5.3% interest, the rise in meme stock prices

occurred in mid- to late- January 2021 because posters on social media investment sites had noted

that some hedge funds had taken large short interests in certain of the Affected Stocks.

41. The most-famous exchange between short sellers and retail investors was an online

battle over GameStop. On January 19, 2021, Citron Research tweeted that it would livestream an

event the next day explaining why GameStop share values would retreat, calling those currently

purchasing GameStop – then hovering around $40 per share – “suckers at this poker game.”

Citing alleged hacks to its Twitter feed on January 20th, Citron’s Andrew Left indicated that he

would tape and post the message on January 21st. Live on the afternoon of January 21st on

Benzinga’s ZingerNation Power Hour, Left stated that GameStop’s business was in “terminal

decline.” Retail investors and savvy hedge funds responded by driving up the price of the stock:

after closing at $43.03 that day, GameStop’s price soared to $65.01 at the close of the markets on

January 22, 2021. By January 27th, Citron was forced to cover its position with purchases in the

$90-dollar range, according to a Tweet it posted at 6:47 a.m. that day.

42. As GameStop’s share price began to soar as a result of this public feud, on January

20
See, e.g., reports by Reuters and Yahoo! Finance on December 8, 2020.
17
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23, 2021, internal Robinhood communications between Tenev, Robinhood Securities President

and COO James Swartwout and others centered around the risk to Robinhood of customers trading

GameStop on margin. Specifically, Swartwout asks: (1) How many customers are holding GME

on margin, (2) If we move to 100% [margin] -- what are the number of calls generated, and (3)

What is our risk exposure? 21 At some point in the planning and analysis for such an event, a

Robinhood employee chimed in, recognizing the potential harm to Robinhood’s customers should

Robinhood require 100% margin for GameStop:

“It seems that the process outlined above covers firm risk well, but
from a public perception POV, we may want to consider the risks our customers
face. Is there a comms need or other action we should consider that would provide
protection to our customers? I defer to … and … on that point, but something to
consider. Although we don’t have a straightforward obligation here because our
customers are self directed, the perception is that they are relatively inexperienced
and our action may well be compared to the actions of other firms (with other
obligations to customers).” 22

Robinhood was thus acutely aware of the potential exposure its customers would face if forced to

liquidate their positions because of a margin call.

43. Prior to January 25th, hedge fund Melvin Capital had amassed an enormous short

position in GameStop shares. As GameStop’s share price rapidly increased, Melvin Capital was

facing billions of dollars of losses. On January 25th, Melvin Capital announced an infusion of $2.75

billion – hedge funds Point72 and Citadel LLC (“Citadel”) lent $750 million and $2 billion,

respectively – to stay afloat after its value had declined more than 30% in a matter of weeks, due

mainly to its short position in GameStop. Earlier, in November 2020, a post on WallStreetBets

21
Robinhood Tranche Amended Consolidated Class Action Complaint (Dk. 409) (“Robinhood
State Law Complaint”) at ¶194 (reproducing internal chat).
22
Id. at ¶195.
18
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alerted the sub-reddit’s millions of followers of Melvin Capital’s short interest in GameStop and

subsequent posters vowed to take the fund down. Melvin Capital closed out its GameStop position

on January 27th.

44. On the morning of January 27th, Vlad Tenev had published an opinion piece for

CNBC.com entitled “Becoming an investor is the new American dream, just like home ownership

was before.” Making the case that Robinhood enables “everyday” Americans to trade, Tenev

welcomed customers to the platform to take part in the current market rally:

“In these turbulent times, it gives us tremendous satisfaction that Robinhood has
expanded access for many to begin their investment journey during the market rally.
Although most of those gains are unrealized, and 2021 is sure to bring its own twists
and turns, we are proud to have enabled our customers to begin participating in the
markets and allow them to progress towards their own financial independence.
***
I’d argue that those who question the capability of retail investors do not have the
interests of everyday Americans at heart. It’s wrong to view the arrival of increasing
numbers of retail investors in the market with dismay. It’s short-sighted to proclaim
that financial instruments integral to investment strategies of the wealthiest
Americans should be left exclusively in the hands of the old guard. 23

45. When asked during a companion interview on CNBC’s “Squawk Box” that same

morning how the company planned to handle the massive volume of trading in stocks such as

GameStop, Tenev stated:

“Like many others in the industry, we have processes that respond to increases in
volatility in certain names by doing things like raising the margin requirements.

23
See https://www.cnbc.com/2021/01/27/robinhood-ceo-becoming-an-investor-is-the-new-
american-dream-just-like-home-ownership-was-before.html (last accessed November 29, 2021).
Even as Robinhood was worried, internally, about being able to handle the trading volume and
margin risk, in addition to this opinion piece, Tenev appeared on Yahoo Finance Live on January
27th and made a similar pitch to customers new to investing: “Retail investors and individuals
have felt like they’ve been talked down to. Lots of them felt like they haven’t been taken
seriously,” he said. “There’s this term ‘sophisticated investor’ that’s been thrown around, so
there’s an idea that they’re unsophisticated.” https://www.yahoo.com/now/robinhood-ceo-retail-
investors-have-felt-like-they-have-been-talked-down-to-are-now-empowered-214947293.html
(last accessed November 29, 2021).
19
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We’ve done that in lots of cases. We, we always remain focused on making sure
the system is reliable, that we’re investing in stability, making sure we’re up for
customers when they need us the most … There’s things happening, different things
happening every week. I think we have to avoid running our business as if we’re
responding to what’s in the news on a weekly basis …”

46. When specifically asked whether Robinhood was raising the margin requirements

for GameStop, Tenev refused to directly answer the question, but instead again compared

Robinhood’s actions to those of its competitors: “Like other brokerages do, we monitor volatility

and take steps as appropriate, like raising the margin requirements.” Tenev’s answer, which painted

Robinhood as a responsible actor in the industry, one that need not specifically react to the meme

stock trading phenomenon, was less than candid.

47. Internally, the answer to host Andrew Ross Sorkin’s question was a resounding

“Yes!” According to the SEC Staff Report, Robinhood had already begun to ratchet up purchasing

restrictions, raising both initial and maintenance margin requirements, with GameStop at 80% on

January 26, 2021, and 100% January 27, 2021. 24 Of course, Tenev’s bid for new customers,

posting both an op-ed and appearing on CNBC’s “Squawk Box” (and on Yahoo Finance Live),

would not have fared as well had he publicly announced specific restrictions on margin trading of

GameStop, which could have opened up the door to questions about customers’ ability to readily

purchase the other Affected Stocks. By side-stepping host Sorkin’s question, Tenev enabled the

Robinhood app to be downloaded 120,000 times that day and Robinhood to set its own record for

active daily users on mobile, at 2.6 million, ultimately catapulting Robinhood to the No. 1 app on

24
SEC Staff Report at 33-34. Although Robinhood is not named, the unique actions described
were those taken by Robinhood. See also Robinhood State Law Complaint at ¶12 (on January
26th, Robinhood Securities President and COO James Swartwout stated in an internal chat: “I sold
my AMC today. FYI – tomorrow morning we are moving GME to 100% – so you are aware.”).

20
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the App Store for the first time.

48. Despite Tenev’s attempt to place Robinhood in the company of other retail online

brokerages, such as TD Ameritrade and Charles Schwab, what Robinhood did over the next eight

days did not remotely resemble the risk management processes employed by any other brokerage

firm. Nor were any two entities in the events that unfolded as tied together in public opinion as

Robinhood and Citadel Securities LLC (“Citadel Securities”).

49. On the evening of January 27, 2021, Robinhood senior staff had an important

discussion with employees of Citadel Securities, the market maker responsible for the largest

portion of Robinhood’s revenues. According to Robinhood’s IPO Registration Statement, in 2019,

PFOF revenue from Citadel Securities represented 29% of Robinhood’s total revenues; in 2020,

the figure rose to 34%. 25 In actual dollars, Citadel Securities paid Robinhood nearly $80.5 million

for its customers’ order flow in 2019 and a whopping $326 million for its customers’ order flow

in 2020. 26 Most important, the filing revealed that Robinhood’s “PFOF … arrangements with

market makers are not documented under binding contracts.” 27 In short, the arrangement was

terminable by either party at any time. Consequently, the continued growth of Robinhood’s

business, and most certainly its ability to move forward with an IPO, was very much in the hands

of Citadel Securities on the evening of January 27, 2021.

50. As internal communications at Robinhood and email chains between Robinhood

25
Robinhood Markets, Inc. Form S-1, filed July 1, 2021, at F-10.
26
Id. at F-4.
27
Id. at 35.

21
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and Citadel Securities indicate, 28 although the initial reason for the discussion appears to have been

anticipated “across-the-board” adjustments by Citadel Securities of PFOF payments to Robinhood

(according to Robinhood Markets Chief Operating Officer Gretchen Howard), it was apparent that

the discussion also included references to the negative impact on Citadel/Citadel Securities and

other HFTs of the intense purchasing activity that caused the price of most of the Affected Stocks

to skyrocket in a single trading session earlier that day. 29

51. Following the phone call, at least one Robinhood executive was unhappy with the

way Citadel Securities apparently dictated the new terms of the parties’ arrangement. Robinhood

Securities President and COO James Swartwout wrote to a counterpart at Citadel Securities: “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.” 30 Although Citadel Securities was Robinhood’s

largest source of revenue, pursuant to an arrangement that is not documented in a binding contract,

Robinhood appears to have only found out on the night of January 27, 2021, who had the upper

hand in the parties’ relationship. 31

28
Partially redacted reproductions of the communications appear in the Corrected Consolidated
Class Action Complaint at ¶¶ 304-313 in the Antitrust Tranche (Dk. 416) (“Antitrust Complaint”).
29
Id. at ¶308 (One Robinhood employee noted: “Anecdotal evidence that several ‘very large’ firms
are having really bad nights too”. Robinhood Securities President and COO Swartwout replied:
“everyone is. you wouldn’t believe the convo we had with Citadel. total mess”).
30
Antitrust Complaint at ¶313.
31
Underscoring this point, Tenev’s request to speak to Citadel CEO Ken Griffin that evening
appears to have been rebuffed. In another email chain, Tenev asked his team to propose a one-on-
one; in response, Citadel Securities offered to have Tenev speak with someone else, indicating
arrangements could be made to speak with Griffin in the future. Id. at ¶¶307, 311 and 312.

22
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January 28, 2021

52. In the very early hours of the morning – after the unsatisfactory phone call with

Citadel Securities and before receiving the January 28th deposit requirement from the NSCC that

Robinhood blames for its six days of trading restrictions – Robinhood decided that customers

holding options for GME and AMC set to expire on January 29th should not be permitted to

exercise those options. Robinhood unilaterally acted in the middle of the night to foreclose this

possibility by placing all options expiring on January 29th into “position closing only” (“PCO”),

sending the following email to customers (posted at 1:03 a.m. on Twitter):

23
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24
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53. Specifically, customers were told: “If we determine that your option contract is at

risk of being in the money and you don’t maintain the necessary collateral to support

assignment/exercise, we may take proactive measures to help reduce your account risk, including

closing at-risk positions prior to expiration date.” (Emphasis supplied.) Thus, before customers

could decide whether to close out the position or deposit funds to exercise their in-the-money

options, i.e., to purchase GME and AMC shares at less than their then-current market value,

Robinhood unilaterally decided it could proactively close out their positions early should it choose

to do so.

54. By closing out the positions early, Robinhood relieved the sellers on the other side

of the option contracts (the “counterparties”) of the obligation to sell shares to Robinhood’s

customers at below market value. Should the counterparties not have had shares of GME and AMC

in their accounts, Robinhood’s action would further relieve them of having to purchase shares at

exorbitant prices to enable them to deliver those shares upon exercise of the option. As the pressure

to perform under these contracts was removed from counterparties, Robinhood knew that such a

“proactive” measure, indeed one step beyond requiring 100% margin for a share purchase, would

cause the price of GME and AMC shares to decline rather than to continue to climb even higher.

55. Robinhood’s use of the phrase “at risk of being in the money” is rather telling. This

is a very an odd way to refer to a successful bet on a stock’s price movement – unless Robinhood

knew for a fact that its customers were new investors who both routinely traded options without

the financial means to exercise them and were more likely than experienced options traders to

exercise their options. 32

32
In fact, Robinhood Securities President and COO James Swartwout explained that Robinhood
customers were so uninformed about options trading that Robinhood took affirmative steps to try
25
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56. Preemptively taking away decision-making authority from its customers by closing

out options early is an action that runs directly contrary to Robinhood’s repeated refrain that it is

democratizing finance for new investors. Less than 24 hours earlier, Tenev’s published opinion on

CNBC.com accusatorily proclaimed: “I’d argue that those who question the capability of retail

investors do not have the interests of everyday Americans at heart.”

57. The decision to move all GME and AMC options expiring on January 29th to PCO

during the early hours of January 28th, potentially closing out early options “at risk of being in the

money,” also contradicts Robinhood Securities President and COO Jim Swartwout’s sworn

statement on February 8th: “At no time on or since January 27, 2021, did Robinhood restrict a

customer’s ability to exercise ITM [in-the-money]options.” 33

58. Hours later, at 5:11 a.m. EST on January 28th, Robinhood received a file from the

National Securities Clearing Corporation (“NSCC”), of which Robinhood Securities is a member,

indicating that Robinhood was required to pay $3 billion dollars (in addition to the nearly $700

million already on deposit) to secure completion of unsettled trades in its customers’ accounts.

The $3.7 billion charge had two components: the core clearing fund charge, the primary

component of which is the value at risk charge (“VaR”) which is calculated based upon the

estimated risk in the member’s unsettled portfolio, and an excess capital premium charge which

compares the member’s excess net capital to its core charges. The more the core charges exceed

to prevent customers from losing money by requiring they speak to a live broker before exercising
out-of-the-money options, i.e., to purchase shares at a price higher than available on the open
market, they should opt to allow to expire. Decl. of James Swartwout, filed Feb. 8, 2021, in Cobos
v. Robinhood Fin. LLC, 21-cv-00835, (C.D. Cal.) (Dk. 27-3) (“Swartwout Decl.”) at ¶¶ 22-23.
33
Swartwout Decl. at ¶24.

26
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the member’s capital cushion, the larger the capital premium charge. To avoid incurring the latter

charge the member must either reduce the level of risk or raise additional capital. 34

59. Citing a “major liquidity issue” Robinhood Markets COO Gretchen Howard wrote

in an internal chat that eight stocks – AMC, GME, NOK, BB, NAKD, KOSS, EXPR and BBBY

– had been moved to position closing only (“PCO”) on the Robinhood Financial platform, with all

purchases prohibited. 35 According to Shiv Verma, Head of Treasury at Robinhood Markets,

because the VaR charge exceeded Robinhood’s net capital, a special excess capital premium

(“ECP”) charge had been assessed in addition to the core VaR charge, and Robinhood was looking

for a way to eliminate or significantly reduce the more than $2.2 billion ECP charge. 36

60. Following a discussion between Robinhood and the NSCC in which Robinhood

“proposed to the NSCC that, as a temporary measure, it would limit customer purchases for certain

volatile stocks that had driven the increased deposit requirements,” 37 before the markets opened

34
See Written Testimony of Michael C. Bodson, CEO of the Depository Trust & Clearing
Corporation, before the Committee on Financial Services of the U.S. House of Representatives,
May 6, 2021 (“Bodson Testimony”) at 3-4. (https://www.dtcc.com/-/media/Files/PDFs/
Testimony-of-Michael-Bodson-050621.pdf)
35
Internal Robinhood chats are reproduced at ¶¶ 232 and 233 of the Antitrust Complaint.
36
Declaration of Shiv Verna, filed Feb. 8, 2021, in Cobos v. Robinhood Fin. LLC, 21-cv-00835,
(C.D. Cal.) (Dk. 27-2) at ¶13. (“Verna Decl.”). For an undercapitalized broker, the ECP could
potentially be much greater than the VaR. Tenev testified that Robinhood’s was more than $2.2
billion on the morning of January 28th. See Written Testimony of Vladimir Tenev, CEO Robinhood
Markets, Inc., before the Committee on Financial Services of the U.S. House of Representatives
Feb. 18, 2021, at 9-10 (after ECP was waived, $3.7 billion charge was reduced to the core charge
amount of approximately $1.4 billion) Thus, the bulk of the $3 billion requested deposit (in
addition to the $700 million already on deposit) was an ECP charge not a core charge.
37
Verna Decl., supra, id. Although Tenev later claimed that Robinhood had been “forced” to
prohibit purchases, this was a voluntary proposal made by Robinhood. Bodson testified: “NSCC’s
role in the market is a neutral one. It does not impose trading restrictions upon its clearing members
27
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on January 28th, the NSCC waived Robinhood’s capital premium charge for the day – in fact, the

NSCC waived net capital charges through February 1, 2021, to allow the trades from both January

27th and January 28th to work through the system. 38 Only because of its decision to halt stock

purchases in eight issuers and the NSCC’s waiver of a $2.2 billion charge was Robinhood was

able to temporarily solve its “major liquidity issue” and meet the NSCC’s greatly-reduced deposit

requirement for January 28th with an additional $700 million payment. Had both extraordinary

measures not been taken, Robinhood would have faced liquidation of its customers’ positions and

left the other members of the NSCC to cover the losses. 39

61. Apparently, the internal assessment of Robinhood Financial’s President and COO,

David Dusseault, that Robinhood would “navigate through this nscc issue” because the company

was “to [sic] big for them to actually shut us down,” proved to be correct. With the liquidity crisis

temporarily solved, by 5:30 p.m. on January 28th Reuters reported that Robinhood raised $1 billion

from existing investors to provide a desperately needed capital cushion. Alas, Robinhood’s

or their customers, and it did not instruct any clearing member to impose restrictions during the
market volatility events of late January.” Bodson Testimony at 5.
38
Bodson Testimony at 5 & n.4.
39
On the evening of January 28th, Thomas Peterffy, the Chairman of Interactive Brokers, viewed
Robinhood’s announced decision to enable the “buy” button when trading opened on
January 29th, even for limited purchases only, a risk to the entire system. The potential liquidation
of Robinhood, should it not be able to meet its deposit requirements, would impact “the integrity
of the marketplace and the clearing system.” He continued: “I’m not comfortable with the current
situation because if the brokers go the clearinghouse has to collect from other members…and it’s
a domino effect.” See M DeCambre “Peterffy calls Robinhood decision to allow ‘limited buys’ of
GameStop troubling: ‘I’m not comfortable’”, Marketwatch.com, Jan. 28, 2021
(https://www.marketwatch.com/story/peterffy-calls-robinhood-decision-to-allow-limited-buys-
of-gamestop-troubling-im-not-comfortable-11611876619, last accessed Nov. 29, 2021)
28
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customers were not too big to fail, these “everyday Americans” were abandoned by Robinhood

without even being told why.

62. After Robinhood took the extraordinary measures of prematurely moving GME

and AME options to position closing only, disabling the “buy” button for shares of GME, AMC

and six other issuers, and telling customers that trades they already scheduled had been cancelled

(either without their consent or, falsely, at their request), 40 on the morning of January 28th,

Robinhood first sent a terse, patronizing note to its customers, one that did not inform investors of

the purchase prohibitions or why they were instituted:

We wanted to reach out to you in the midst of the current volatile market conditions.
It’s as important as ever to be an informed investor.

Whether you’re brand new to Robinhood or have been investing with us for years,
we have lots of resources to help you navigate the markets, including Investing 101
and our entire Help Center.

Here are some specific articles from Robinhood Learn to help make sense of market
volatility:
-- The stock market has been super volatile – How can I make sense of it?
-- Volatility explained

As always, thank you for being a Robinhood customer.

Sincerely,

The Robinhood Team 41

63. At or near the market open, Robinhood decided to increase the number of stocks

for which purchases were barred to 13, adding AAL, CTRM, SNDL, TR and TRVG to the list. In

40
See Robinhood State Law Complaint at ¶¶243-244; Antitrust Complaint at ¶237.
41
This initial message was made public shortly before trading began. See, e.g., “Robinhood sends
market volatility warning to brokerage app users,” ClickonDetroit.com (online site of WDIV
Channel 4 news, Jan. 28, 2021) (https://www.clickondetroit.com/news/2021/01/28/robinhood-
sends-market-volatility-warning-to-brokerage-app-users/, last accessed November 29, 2021)
29
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a blog post on its site, stunned customers were provided no information – beyond a reference to

“recent volatility” – about why the “buy” button had been disabled for these stocks:

Keeping Customers Informed Through Market Volatility

Our mission at Robinhood is to democratize finance for all. We’re proud to have
created a platform that has helped everyday people, from all backgrounds, shape
their financial futures and invest for the long term.

We continuously monitor the markets and make changes where necessary. In light
of recent volatility, we are restricting transactions for certain securities to position
closing only, including $AAL, $AMC, $BB, $BBY, $CTRM, $EXPR, $GME,
$KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG. We also raised margin
requirements for certain securities.

Amid significant market volatility, it’s important as ever that we help customers stay
informed. That’s why we’re committed to providing people with educational
resources. We recently revamped and expanded Robinhood Learn to help people
take advantage of the hundreds of financial resources we offer and educate
themselves, including how to make sense of a volatile market. In 2020, more than
3.2 million people read our articles through Robinhood Learn. 42

64. The two public statements issued on the morning of January 28th were hardly a

model of the transparency in which Robinhood purports to take pride. As Tenev admitted two

weeks later, on the February 12th podcast of All-In with Chamath, Jason, Sacks & Friedberg: “no

doubt we could have communicated this a little bit better to customers.” However, when Tenev

was specifically asked why Robinhood did not just come right out and explain the real reason to

its customers, that the NSCC’s initial $3 billion deposit requirement forced its hand, his

explanation of what happened is even more disingenuous.

65. Tenev deceptively tried to palm off the uninformative communications as ill-

conceived automated messages. Specifically, because Robinhood has an “operationalized process”

42
Id. (updated heading added to the article, “Robinhood now ‘restricting transactions for certain
securities’ ” republishes the blog post in full).
30
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to switch off the “buy” button for a short period of time for a legitimate reason, e.g., the occurrence

of a corporate action such as a reverse stock split, Tenev suggested that when that action is taken,

“there’s a button in a dashboard you can click and automated emails get sent out. It’s an operational

process that I think in hindsight we probably should have ‘exceptionalized’ to make it clear why

we were doing this.” Because the three stated reasons (in the Help Center FAQ “Why don’t I see

a buy button?”) were not applicable to the popular stocks Robinhood customers were attempting

to purchase, the appearance of these automated messages raised more questions for Robinhood’s

customers than they answered.

66. Although Tenev only referenced inapposite automated messages when he

retrospectively indicated that Robinhood should have “ma[de] it clear why we were doing this,”

the vague communications concerning “market volatility” quoted in ¶¶62 and 63, were carefully

crafted before being sent to customers to specifically address the situation at hand. Internal

Robinhood communications reveal that at 8:13 a.m. EST on January 28th, Robinhood was

fashioning just the right message to not lose credibility with its current and future customer base:

“Is there a level to which we are aiming for? . . . Not sure where the line is as a brand . . . not sure

yet – I know there is a team working on our response here and we’ll know more shortly.”

(Emphasis supplied.) 43

67. As the crisis was unfolding, the image that Robinhood was trying to project in

advance of its IPO was not one of a company saved from liquidation by both the grace of an NSCC

deposit waiver and Robinhood taking the extreme action – taken by no other retail brokers – to

entirely shut down purchases of 13 different stocks. On the February 12th podcast, however, after

43
Robinhood State Law Complaint at ¶205.

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Robinhood raised $3.4 billion and shored up its balance sheet, Tenev concluded, in retrospect, that

communications to customers should have been more forthright about the actions Robinhood took

to respond to the NSCC’s deposit demand. 44

68. Whether or not that explanation is entirely truthful, the deliberate decision not to

provide it to the public in real time caused retail investors to reach their own conclusions,

exacerbating the market volatility. Robinhood’s precisely worded messages, that intentionally kept

investors in the dark to save face, further drove down the share prices of the Affected Stocks.

Specifically, Tenev explained that because Robinhood withheld information about the NSCC’s

deposit requirement, investors immediately jumped to the conclusion that Robinhood was on the

side of the hedge funds the WallStreetBets investors were trying to take down.

69. As the share prices of the Affected Stocks plummeted because of Robinhood’s

unexplained decision to prohibit all share purchases, 45 Robinhood’s actions were immediately and

universally decried as market manipulation – and not just by the followers of the WallStreetBets

sub-Reddit. Robinhood was sharply criticized by members of Congress from both sides of the

aisle, with Representatives Rashida Tlaib and Alexandria Ocasio-Cortez and Senators Ted Cruz

and Marsha Blackburn all weighing in against its restrictions. (The next morning, as noted in a

44
During a podcast on February 23rd with Dave Portnoy of Barstool Sports, Tenev again admitted
that the vague communications about “market volatility” were insufficient: “[W]e we sent some
emails that were like, hey, there’s some market volatility going on, and we basically sent a link
that said: What is market volatility? I think in that one, in hindsight, we should have said, hey,
some things can happen that restrict certain aspects of your trading …”
45
Price graphs of the nine Affected Stocks, GME, NOK, AMC, KOSS, TRVG, BBBY, EXPR,
TR, and BB appear, respectively, at ¶¶ 258-266 of the Antitrust Complaint. Each shows a sharp
price decline as between January 27th and January 28th. A chart of the prices of these stocks
throughout the Class period is set forth below at ¶76.

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tweet by U.S. Rep. Jamaal Bowman, Robinhood added a job posting for a new position based in

Washington, D.C. for a “Federal Affairs Manager”, i.e., a lobbyist.)

70. Many were disillusioned that the alleged disruptor, Robinhood, suddenly made it

impossible for its customers to freely purchase the Affected Stocks while institutional investors

and those on more-established online platforms could still do so. Some accused Robinhood of

acting to benefit hedge funds, including Citadel LLC, and Citadel Securities, the market maker

which provided Robinhood 36% of its 2020 revenues and had flexed its power the night before.

Specifically, many theorized that Robinhood knowingly acted to slash the price of the Affected

Stocks so that the hedge funds and market makers could cover their short positions in various

meme stocks, as Melvin Capital and Citron Capital had been forced to do. 46

71. Robinhood prohibited purchases, but not sales, of the Affected Stocks to decrease

the amount of the core charge it was required to deposit with the NSCC, which would enable the

company to withstand the financial impact of the volume of its customers’ trades – business it

actively recruited and recklessly stoked during the market rally – so that it could survive until its

IPO. Additionally, cutting off demand from 15 million active traders, a large percentage of which

traded in one or more of the Affected Stocks, could also assist Citadel, Citadel Securities, other

market makers who generate PFOF revenue, and/or hedge funds – many of which Robinhood

executives believed were negatively impacted by the explosion in the price of the Affected Stocks

on January 27th – by causing a price decline that would permit these powerful market players to

cover, and/or profit from, short positions they held.

46
A chart in the SEC Staff Report showed that purchases to cover short sales were more prevalent
during the period January 22 -27, 2021, than they were on January 28, 2021. However, the data
presented appeared to expressly exclude trading by market makers and other HFTs. SEC Staff
Report at 28, Fig. 6 and n.78.
33
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72. Regardless of its motive(s) on January 28th, when it closed out AMC and GME

options early, disabled multiple “buy” buttons, and cancelled purchase orders for the Affected

Stocks, Robinhood was certain of one thing: its actions would harm its customers and others who

held the Affected Stocks by driving down their share prices. Not only were customers who would

be harmed not protected or warned, as suggested should occur in a Robinhood January 23rd

internal communication (¶42, above), but a senior Robinhood official did sell his shares of one of

the Affected Stocks and warned his own colleagues before the restrictions were imposed.

73. Robinhood Securities President and COO James Swartwout attested to being the

person at Robinhood who made the PCO decisions. 47 According to his candidate statement in a

2020 FINRA Regional Committee Election:

James Swartwout is a 30 year veteran of the securities industry who has held
leadership roles at many of the top discount brokerage firms in the nation. His career
encompasses roles in customer support, back office operations, trading and order
management, clearing operations as well as branch operations. Currently the
President and COO of Robinhood Securities LLC based in Lake Mary, Florida, he
has also held Senior Leadership positions at AmSouth Investment Services,
E*TRADE Securities and E*TRADE Clearing, Scottrade and was the President of
tradeMONSTER until its merger with Optionshouse

74. Thus, when Swartwout stated in an internal communication on January 26th: “I sold

my AMC today. FYI – tomorrow morning we are moving GME to 100% [margin] - so you are

aware,” both Swartwout and all of the Robinhood personnel who were on the internal chat (or were

told of its contents) knew that the prices of the Affected Stocks would be driven down should

Robinhood make it more difficult to purchase and hold shares in the Affected Stocks by imposing

a 100% purchase and maintenance margin requirement on its 15 million customers. These same

Swartwout Decl. at ¶34 (“This was a decision I made on behalf of RHS and in consultation with
47

my operations team at RHS and others at Robinhood.”)

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Robinhood executives understood very well that making the Affected Stocks impossible for their

customers to purchase would have an even greater impact on Robinhood’s customers and on the

prices of the stocks subject to the purchase prohibition. After all, it was the very propensity of

Robinhood’s customers to purchase these very stocks in such high concentration that was the basis

for the initial $3 billion deposit demand.

75. Indeed, before the markets opened that morning, one Robinhood employee looking

at the big picture questioned how detrimental Robinhood’s actions could be – and how that would

affect Robinhood (a company planning an IPO) in the long term: “I think the blowback from this

is going to be exponentially worse as time goes on . . . Just worried about the long term affects

[sic] of this.” 48 As Tenev later admitted: “We knew this was a bad outcome for customers.”

76. Not only Robinhood’s customers were negatively affected by the tsunami of selling

unleashed by Robinhood’s disabling of “buy” buttons for the very stocks that were the most

popular with its customer base. By the close of the markets on January 28th, each of the Affected

Stocks saw significant declines from the previous close:

48
Robinhood State Law Complaint at ¶205 (the remainder of the quoted message appears in ¶66).

35
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Closing price Closing price
January 27, January 28,
2021 2021
AMC (AMC $19.90 $8.63
Entertainment
Holdings Inc.)
BB (BlackBerry $25.10 $14.65
Ltd.)
BBBY (Bed $52.89 $33.64
Bath & Beyond
Inc.)
EXPR (Express $9.55 $4.70
Inc.)

GME $347.51 $193.60
(GameStop
Corp.)
KOSS (Koss $58.00 $41.96
Corp.)
NOK (Nokia $6.55 $4.69
Oyj)
TR (Tootsie $41.25 $37.33
Roll Industries
Inc.)

TRVG (Trivago $3.19 $2.48
N.V.)

77. That evening, Tenev hit the airwaves to do damage control. Again appearing with

Andrew Ross Sorkin on CNBC, Tenev stated that Robinhood had to make a “very difficult

decision” to halt customer purchases of the stock of multiple issuers “as part of normal operations.”

Rejecting the suggestion that Robinhood shut off its customers’ ability to purchase these stocks to

aid hedge funds and market makers by depressing share prices for those needing to cover short

positions, Tenev stated: “We absolutely did not do this at the direction of any market maker or

36
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hedge fund or anyone we route to or any other market participants.” (Emphasis supplied.) 49

78. Instead, Tenev explained the various regulatory capital requirements at play that

morning and how they had sharply increased due to volatility concentrated in the Affected Stocks,

ultimately leading to the determination that “to protect the firm and protect our customers we had

to limit buying in these stocks.” Customers unable to freely trade disagreed with Tenev’s

paternalistic attitude; they felt betrayed, not protected, by Robinhood’s self-serving actions.

79. Host Sorkin followed up by asking whether Tenev’s explanation suggested

Robinhood had a liquidity problem, raising “all sorts of new questions” about whether there is a

systemic issue underneath the company itself. Seeking to squelch questions about Robinhood’s

financial stability, and directly contradicting Robinhood Markets COO Gretchen Howard’s

internal comment that morning that a “major liquidity issue” led to the decision to PCO eight

stocks before the market opened, Tenev flatly denied it, claiming:

“There was no liquidity problem. And to be clear this was done pre-emptively, so
we did this proactively … And we’re doing what we can to allow buying and to
remove these restrictions in the morning.” (Emphasis supplied.)

80. Tenev’s false statement – that Robinhood did not have a liquidity problem on the

morning of January 28th – was made with scienter because:

(a) Tenev knew that Robinhood’s COO internally attributed its decision to PCO

eight stocks to Robinhood’s having a “major liquidity issue,” to wit, an inability to

otherwise meet the additional $3 billion deposit demanded by the NSCC in the ordinary

course of business;

49
The denial is very precise: Tenev did not state that the decision was not made to benefit market
makers or hedge funds or that it was made regardless of its impact on market makers and hedge
funds, just not “at the direction” of these powerful players.
37
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(b) Were Tenev to admit to the liquidity crisis Robinhood faced that morning,

it would reveal that Robinhood was ill-prepared to handle the volume of trading generated

by the extraordinary popularity of its app, potentially endangering the planned IPO;

podcast, Tenev doubled down on his misstatement, underscoring his motivation for making

it on January 28th – to make it appear Robinhood’s actions were akin to those taken by

other brokers and that it was never on the brink of liquidation. Specifically, Tenev was told

that people thought he was “obfuscating or lying” to host Sorkin when he denied there had

been a liquidity problem. When Tenev was asked whether he would now respond “Yes, we

had a liquidity issue, and here’s why,” Tenev stuck by his earlier denial:

“I stand by what I said and I’ll explain it . . . Restricting the buying of
securities is something that every, pretty much every broker did to some
degree during this week. When you say the “L” word in financial services
it reminds you of Lehman Brothers where you literally are not able to
operate your business. We met all our deposit requirements.”

Of course, what Tenev left out was that the NSCC exercised its discretion to waive the

more than $2.2 billion excess capital payment which had dwarfed the core charge that

morning, and that the deposit amount that was required had only been reduced because of

Robinhood’s suggestion that it would temporarily limit purchases of certain volatile stocks.

Without these actions, Robinhood most certainly had a “major liquidity issue.” Tenev, who

wanted potential investors in Robinhood’s IPO to hear that Robinhood’s actions were “part

of normal operations” and that it had acted as “pretty much every other broker did,” would

not admit to Robinhood’s liquidity problem for fear of endangering the planned IPO.

(d) On February 23, 2021, Tenev appeared on a podcast hosted by one of

Robinhood’s biggest critics, Dave Portnoy of Barstool Sports. Asking the liquidity

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question in different ways, Portnoy obtained several admissions from Tenev:

(i) Portnoy: If you don’t get a call at three in the morning, do you
regulate trading?

Tenev: Well, no, we did this because we had to comply with our
capital requirements . . .

Portnoy: But you found that out at like three in the morning . . .

Tenev: If we had a bunch more headroom, yes, we probably
would have let things continue . . .

Portnoy: Well if you didn’t get a call that says, hey, we need this
money from you, you wouldn’t have shut off buying?

Tenev: Correct. The last thing we would want to do is shut off buying

(ii) Portnoy: That is a capital issue, he specifically said, a liquidity issue, you
need this much money, you didn’t have it, so you acted. Isn’t that the
essence of liquidity? Like, are you afraid to say liquidity, because of a
domino effect with the banks?

Tenev: I think that liquidity issue, and I probably should be careful and
call it the “L word,” right, the “L word” is a big thing in financial services.
Basically, if you say liquidity issue means you can’t meet your capital
requirements, or your deposit requirements, then you’re essentially
dead, and that was not the case with Robinhood. We met our capital
requirements; we met our deposit requirements …

Portnoy: But, that theoretically could be a technicality, right, if you didn’t
change the trading of that day, you may have had a liquidity issue
tomorrow?

Tenev: Exactly. I think that’s accurate. (Emphasis supplied.) 50

Even though Tenev finally admitted that had Robinhood been better capitalized on the

morning of January 28th it would have not disabled any “buy” buttons, he clung to the

50
The podcast can be found at https://www.youtube.com/watch?v=LqoJApzkaPU, last accessed
November. 29, 2021.

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“proactive"/”pre-emptive” measures argument by explaining that the liquidity problem was

not at hand, but a day away. To make that hair-splitting distinction, Tenev conveniently

omitted that Robinhood only got to live to see another day because, in addition to its

decision to PCO various stocks, the NSCC waived a $2.2 billion ECP charge.

81. Avoiding host Sorkin’s question of what he would tell investors who lost money

because they were unable to buy the Affected Stocks or had to sell them at a loss, Tenev inaptly

analogized Robinhood to Clorox and Lysol running out of inventory early in the pandemic: “We

just have not seen this level of concentrated interest market-wide in a small number of names

before … We’re doing what we can to re-enable buying in these names and we stand with our

customers.”

82. Later that evening, in an interview on CNN with Chris Cuomo, Tenev was again

asked whether the need to restrict purchasing to meet regulatory capital requirements evidenced a

liquidity problem at Robinhood. Repeating the same talking points used on CNBC, Tenev stressed

that Robinhood did not have a liquidity problem. Stating “we feel pretty good about the situation,”

Tenev instead claimed that Robinhood imposed the restrictions “pre-emptively” and “proactively.”

He added: “We feel good about being able to re-enable these things.”

January 29, 2021

83. Believing Tenev’s statements that the prohibition on purchases of 13 stocks was

not evidence of a liquidity problem and that Robinhood was working hard to “re-enable”

purchases, premarket trading activity on January 29th was very high as investors looked forward

to purchasing these stocks when Robinhood lifted its restrictions. This belief was bolstered when

CNBC reported that Robinhood was able to increase its net capital by securing financing of $1

billion, adding to the $500 million credit line it already tapped.

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84. Early in the trading day, SlashGear.com reported that Robinhood had lifted its

complete prohibition but had imposed restrictions on the number of shares and option contracts a

customer could purchase in the companies whose shares it had PCOed the day before:

85. Several hours into the trading day, as the price of the 13 stocks PCOed the previous

day had quickly rebounded from their steep declines, Robinhood significantly ratcheted up the

share purchase restrictions it had put in place at the start of trading (as reported by SlashGear.com):

41
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86. Several hours later, ShashGear.com reported that even greater restrictions were

imposed on the purchase of shares and/or options of the original 13 PCOed stocks, and new

restrictions were imposed on 10 additional issuers, for the first time:

87. As the day wore on, the number of stocks subject to purchase restrictions more

than doubled – from 23 mid-afternoon to 50 during the last half hour of trading for the week. No

longer limited to volatile meme stocks, the list now included issuers such as Starbucks and GM.

As CNBC reported that afternoon:

Restrictions on Robinhood traders got tighter throughout the day on Friday, only
allowing clients to buy a single share of GameStop.

The stock trading app also expanded its list of restricted stocks from 13 earlier in
the day to 50.

“The table below shows the maximum number of shares and options contracts to
which you can increase your positions,” Robinhood wrote. [Although CNBC

42
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recreated the table, below is a copy of the original posting on Robinhood’s
website 51]

Symbol Shares Options contracts
AAL 1 10
ACB 1 Standard limits apply
AG 1 Standard limits apply
AMC 1 10
AMD 1 Standard limits apply
BB 1 10
BBBY 1 10
BYDDY 1 N/A
BYND 1 Standard limits apply
CCIV 1 Standard limits apply
CLOV 1 Standard limits apply
CRIS 1 Standard limits apply
CTRM 5 N/A
EXPR 5 10
EZGO 5 N/A
GM 1 Standard limits apply
GME 1 5
GTE 5 Standard limits apply

51
https://web.archive.org/web/20210129203511/https://robinhood.com/us/en/support/articles/cha
nges-due-to-recent-market-volatility/ (This archived page from the Robinhood site on January
29th was last accessed on November 29, 2021.)
43
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Symbol Shares Options contracts
HIMS 1 Standard limits apply
INO 1 Standard limits apply
IPOE 1 Standard limits apply
IPOF 1 Standard limits apply
JAGX 5 Standard limits apply
KOSS 1 N/A
LLIT 5 N/A
MRNA 1 Standard limits apply
MUX 5 Standard limits apply
NAKD 5 N/A
NCTY 1 Standard limits apply
NOK 5 10
NVAX 1 Standard limits apply
OPEN 1 Standard limits apply
RKT 1 Standard limits apply
RLX 1 Standard limits apply
RYCEY 5 Standard limits apply
SBUX 1 Standard limits apply
SHLS 1 N/A
SIEB 1 Standard limits apply
SLV 1 Standard limits apply
SNDL 5 10
SOXL 1 Standard limits apply
44
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Symbol Shares Options contracts
SRNE 1 Standard limits apply
STPK 1 Standard limits apply
TGC 5 N/A
TIRX 1 N/A
TR 1 10
TRVG 5 10
WKHS 1 Standard limits apply
XM 1 Standard limits apply
ZOM 5 N/A

The restricted list tells clients how many shares and options contracts they can buy
pertaining to a particular security. Robinhood customers can only buy one share
and up to five options contracts of GameStop; however, if a customer already owns
one or more share of GameStop, they are not able to buy any more shares.

Robinhood’s restrictions could take the wind out of point-and-click traders trying
to jack up the price of GameStop. Robinhood, however, will not sell any client’s
shares of GameStop that are already over the one-share limit from a previous
position.

The stock, which closed up 67%, was off its highs of the session as the new more
severe limits were implemented. Earlier in the day, clients could buy five shares
of GameStop.

The most shares clients could buy of any of the 50 stocks was five. Clients without
existing shares can only buy one share and 10 options contracts in AMC
Entertainment, which is down from an earlier 115 shares. Shares of AMC
Entertainment closed up 53% but also well off their highs of the day. Clients can
only buy one share of American Airlines, Bed Bath & Beyond and Koss.

The stock trading app has also expanded its list of restricted stocks. Some of the
new names include Advanced Micro Devices, Starbucks, Novavax, General Motors
and Beyond Meat.

45
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On Thursday, Robinhood told clients it was only allowed to sell shares, not buy
new ones, in certain securities that were garnering social media attention from
Reddit crowds. The firm also raised margin requirements, or the amount of money
in a client’s account when they will be using leverage to buy a security.
Robinhood’s decision was met with outrage, with many users taking their grievance
to Twitter.

Robinhood said the trading restrictions were risk management decisions to protect
Robinhood and its clearinghouses, but touted that the restrictions would be eased
on Friday.

The free trading pioneer raised $1 billion in investor money and tapped more credit
lines overnight for its clients to be able to trade names like GameStop and AMC
Entertainment on Friday.

However, the restrictions got tighter throughout the trading day, as the list of limited
securities grew and the number of shares clients could buy shrunk for certain stocks.
(Emphasis supplied.)

88. Rather than working to ease restrictions on January 29th as repeatedly suggested by

Tenev the night before, as the trading day progressed Robinhood once again panicked about not

having sufficient excess capital to satisfy a deposit requirement for the January 29th trades. For this

reason, Robinhood, on several occasions during the trading day, placed greater restrictions on free

trading. And each time new restrictions were imposed, the prices of the Affected Stocks declined.

89. As noted in italicized portions of the CNBC report reproduced above, as they did

on January 28th, Robinhood’s new restrictions had an oversized, detrimental impact on the market

price of the Affected Stocks. On several occasions when Robinhood increased restrictions on share

purchases during the day – just after 12:30 p.m. and before 2:30 p.m. – there was an immediate

decline in the market price of the Affected Stocks: 52

52
A chart in the Antitrust Complaint appears to correlate GameStop price and trading volume
declines to Robinhood’s two-share and one-share limits on the afternoon of January 29th. Id. at
¶325 and chart (text inadvertently refers to the date as January 30th, a Saturday).

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90. Most significantly, this distortion of the stock prices that occurred at various points

during the trading day is directly attributed to Robinhood’s manipulative actions because

Robinhood was the only retail broker that not only continued the stock purchase restrictions

imposed on January 28th but actually increased purchasing restrictions over the course of the

January 29th trading day. 53

91. Although the NSCC had exercised its discretion to waive the excess capital charges

for Robinhood through the close of business on February 1st, to allow the trades from January 27th

53
On January 29th, Apex Clearing Corporation (“Apex”) informed Robinhood of a post on
WallStreetBets instructing how to evade purchase restrictions on the Affected Stocks. See Antitrust
Complaint at ¶¶328-330 (reproduced internal chats between Robinhood’s Miles Wellesley, David
Dusseault and/or Jim Swartwout) (“FYI Apex pinged me on this to make sure we are aware of
it.”). Robinhood’s chats about Apex’s warning appear to have occurred between the first and
second intraday imposition of more-severe purchase limits for the Affected Stocks.

51
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and January 28th to work their way through the system, having only raised $1 billion as a capital

cushion at that point, Robinhood could have faced another liquidity crisis on February 2nd if the

trading volume on January 29th – as share prices began to rebound sharply – was so great that the

amount of the unsettled trades again resulted in a core charge that greatly exceeded Robinhood’s

net capital. (This is precisely the scenario that Thomas Peterffy, the Chairman of Interactive

Brokers had feared when interviewed the prior evening.) The $1 billion raised in the past 24 hours

might not be enough to meet an ECP of several billion, as Robinhood had initially faced on the

morning of January 28th.

92. To whitewash its unique, drastic, and seemingly random restrictions, i.e., on issuers

that were not heavily-shorted, WallStreetBets meme stocks, Tenev appeared on Yahoo Finance

Live on January 29th – as Robinhood was imposing new restrictions and manipulating market

pricing – to spread the false message that Robinhood’s actions were, in fact, commonplace:

Brokerages and other financial institutions do this all the time. They’ve been doing
this throughout the week and it’s just part of day-to-day, normal operations. Now,
sure, Robinhood gets a lot of attention for it, but this is just a standard part of
practices in the brokerage industry and the broader financial industry.

***

Well, again, what we’ve done is something that other brokerages have done. It’s not
unique to Robinhood to place restrictions on purchasing certain things at certain
times. Other brokers have done it. 54

93. Tenev’s claim was patently untrue. No other online retail broker took as extreme

measures to restrict customers’ ability to freely trade as Robinhood did on January 28-29, 2021.

For example:

54
https://www.yahoo.com/lifestyle/robinhood-ceo-made-decision-response-204254105.html , last
accessed on November 29, 2021.

52
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(a) Charles Schwab, Fidelity, and TD Ameritrade did not prohibit equity

purchases on January 28, 2021;

(b) Apex is alleged to have required eight introducing brokers (including the

very popular Webull) to turn off the “buy” button for only three of the Affected Stocks,

AMC, GME and KOSS, for 3 ½ hours, until just before 3:00 p.m. on January 28, 2021; 55

AMC, BB, EXPR, GME and KOSS into liquidation only on January 28, 2021, removing

the options restrictions after the close of trading on January 29, 2021; and

(d) E*Trade limited purchases of GME and AMC for part of the day on January

28, 2021, but allowed trading to resume on January 29, 2021. 56

94. As Robinhood’s increasingly severe restrictions on January 29th distorted the prices

of the Affected Stocks, the public began to recognize Robinhood’s power to move the markets. As

reported by The New York Times on January 30, 2021, Robinhood is far and away the app of choice

for active retail traders:

The app was downloaded more than 177,000 times on Thursday [January 28th],
twice the daily download rate over the previous week, according to Apptopia, a
data provider, and it had 2.7 million daily active users on its mobile app that day,
its highest ever. That’s more than its rivals — Schwab, TD Ameritrade, E*Trade,
Fidelity and Webull — combined. 57

55
Amended Consolidated Class Action Complaint (Other Broker Tranche) at ¶ 2 (Dkt. 410).
56
E*Trade’s purchase halt was explained: “Amid the extraordinary volumes in GME and AMC,
we chose to limit client activity in these names late in the trading day in order to ensure that we
could continue to serve our broader client base. We take actions like this seriously, and only initiate
them in rare circumstances. We expect to resume normal trading operations tomorrow.”
57
N. Popper, M. Phillips, K. Kelly and T. Siegel Bernard, “The Silicon Valley Start-Up That
Caused Wall Street Chaos,” The New York Times, Jan. 30, 2021 (last accessed on November 29,
2021, at https://www.nytimes.com/2021/01/30/business/robinhood-wall-street-gamestop.html).

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95. A review of trading data from January 2021 not only confirms the New York

Times’s assessment that Robinhood was the 800-pound gorilla in the industry of online retail

brokers but also reveals that it was a dominant force, overall, in U.S. equity markets. In June 2021,

the Wall Street Journal reported that Larry Tabb, the head of market-structure research at

Bloomberg Intelligence, estimated: “Activity from individual investors trading on Robinhood

Markets Inc. accounted for roughly 4% of total U.S. share volume in January …” 58 Given the

fact that one of every 25 shares traded on all U.S. markets in January 2021 traded on the Robinhood

platform, when Robinhood halted, partially-restored, and then severely restricted purchases of the

Affected Stocks, Robinhood manipulated the market prices of the Affected Stocks.

96. What is most appalling about Robinhood’s improper actions on January 29th –

restricting 50 issuers by late in the trading day with no apparent rhyme or reason – is that

Robinhood doubled down on its manipulations from the prior day because Robinhood appeared to

not only have survived the firestorm but thrived, raising $1 billion from investors in a single day.

During the February 12th podcast, Tenev revealingly admitted: “When an early investor called me

throughout this and said, hey, chin up, you know, navigating a crisis successfully unlocks the next

level of value creation for the company, [ ] I’ve had that in mind the entire time.”

97. Temporary restrictions due to volatility are imposed across entire exchanges for

minutes at a time, not indefinitely, and most certainly not on the demand side only across a wide

swath of issuers by a single firm desperate to manage, on the fly, its deposit requirements with the

NSCC for the next few days. With the benefit of having raised another $2.4 billion over the

58
Caitlin McCabe, “It Isn’t Just AMC. Retail Traders Increase Pull in the Stock Market,” The Wall
Street Journal (June 18, 2021).

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weekend quelling the fear Robinhood must have experienced on January 29th, during the February

12th podcast, Robinhood’s CEO tried to normalize its outrageous price manipulations during

trading on January 29th:

“I’m very proud of the transition that we made between Thursday and Friday, so
Thursday we had the blunt hammer of PCO’ing these stocks, which obviously was
not ideal. By Friday, we had moved to a much more sophisticated system where
intraday we adjust the position limits in, it was up to 50 stocks, and we published
that on our website, so that gave us a lot more granular control over it, and is a
better system, and we’re going to only improve that, and take the learnings to other
parts of the business.”

January 30 and 31, 2021

98. Over the weekend, to combat public perception that Robinhood imposed purchase

restrictions because it was beholden to Citadel Securities, the source of 36% ($326 million) of

Robinhood’s 2020 revenues, the companies discussed how they could “generally coordinate

messaging, in particular some of the narrative around Ken [Griffin, Citadel Securities’ CEO]

owning Robinhood.” Citadel Securities informed Robinhood’s Vice President for Corporate

Communications, Josh Drobnyk, who at Citadel Securities was “running point on this narrative

for us,” noting that members of its General Counsel office were also copied, in part, “for

privilege.” 59

59
Antitrust Complaint at ¶335 (reproducing partially redacted email chain). The companies’
messaging on the subject has been in sync: Both Tenev and Griffin denied coordinated action in
their testimony before Congress on February 18, 2021. (https://www.c-span.org/video/?508545-
1/gamestop-hearing-part-1&event=508545&playEvent). On September 28, 2021, after complaints
in the other tranches in this MDL revealed communications between Robinhood and Citadel during
the last week of January 2021, in response to the trending hashtag, #KenGriffinLied, Griffin
surprisingly tweeted: “It must frustrate the conspiracy theorists to no end that Vlad and I have
never texted, called, or met each other.” (Perhaps Tenev’s request to speak with Griffin on January
27th was turned down to allow Griffin to later make this very denial.) For its part, Robinhood issued
a statement claiming: “At no point did Citadel or any other market maker pressure the business to
move any securities to position-close only.” When the legitimate business reason for the meeting
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99. The next day, Vlad Tenev penned an op-ed in USA Today to repeat Robinhood’s

nothing-to-see-here-folks message, to wit, we were forced to restrict buying due to unprecedented

regulatory requirements, not to help Citadel, Citadel Securities, or other HTFs. Under the caption

“Robinhood CEO: We’re helping those left behind by Wall Street, not hedge funds,” Tenev sought

to reassure ordinary investors on Main Streets across the country that Robinhood had their backs,

stating, in relevant part:

We built Robinhood for our customers. For millions of people who have felt left
behind by America’s financial system. For people who felt turned away by the big
Wall Street financial institutions. For those who are making their voices heard
through the markets and showing the world that investing is for everyone.

Last week, we witnessed something the stock market has never quite experienced
before. Short squeezes on a small number of stocks triggered wild gyrations in
prices, massive volatility that prompted clearinghouses to take swift action to protect
the plumbing that handles stock trading every day.

In a matter of days, our clearinghouse-mandated deposit requirements related to
stocks increased ten-fold. These deposits are the collateral we post to ensure our
access to clearinghouse services on behalf of our customers. They are what led us to
put temporary buying restrictions in place on a small number of securities that the
clearinghouses had raised their deposit requirements on. As we noted in a blog on
Friday, it was not because we wanted to stop people from buying these or any stocks
— we built Robinhood to provide access to investing for all. And it certainly wasn’t
because we were trying to help hedge funds.

100. Also on January 31, 2021, Elon Musk interviewed Vlad Tenev on the audio-based

social-network site Clubhouse. As he did during his discussions on CNBC on January 27th and

Yahoo Finance Live on January 29th, Tenev disingenuously compared Robinhood’s actions to

those of other retail brokers. Specifically, Tenev claimed that while Robinhood’s name was all

on the evening of January 27th was a discussion of an across-the-board reduction of Robinhood’s
largest source of revenue, PFOF payments from Citadel, is any pressure necessary? While the
claims asserted in this case require no proof of coordination, it does appear that Griffin and Tenev
doth protest too much.
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over the press, “other brokers basically restricted the same exact activity.” This was not true. As

set forth in ¶93(a)-(d), above, other brokers did not completely shut down purchasing, either at all,

as long, and/or in as many issuers as did Robinhood. Tenev’s misrepresentation was made with

scienter because the specific restrictions imposed by different brokerages on January 28th and

January 29th were widely reported in the financial press and Tenev knew (or should have known

on a matter of such critical importance), that Robinhood’s actions were out of step with all other

brokerages, especially on January 29th when Robinhood, alone, restricted stock purchases on up to

50 issuers.

101. After walking Musk through Robinhood’s interactions with the NSCC on the

morning of January 28th, to reduce and ultimately be able to meet deposit requirements by

prohibiting new purchases of volatile stocks, Tenev candidly admitted: “We knew this was a bad

outcome for customers.” But, trying to limit the damage, Tenev stated that the reason that both

buying and selling were not restricted was that Robinhood concluded that it would be

“categorically worse” to restrict both purchases and sales at the same time, explaining: “People

get really pissed off if they’re holding stock and they want to sell it and they can’t.”

102. Tenev’s explanation for the one-sided trading halt does not appear in the internal

chats on the subject. While several expressly discussed the dire fallout of moving numerous issuers

to PCO, 60 and correctly anticipated the fury of frustrated purchasers, nowhere was it suggested

that continuing to permit sales of the Affected Stocks would at least avoid an even greater level of

ire from customers desperate to sell.

60
See, e.g., Robinhood State Law Complaint at ¶7 (“we’re going to get crucified … for pco’ing”),
¶205 (“I think the blowback from this is going to be exponentially worse as time goes on. Not sure
where the line is as a brand …), ¶219 (“Need to inform FINRA of expectations around plan for
pco symbols & expected increase in complaint impact”).
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103. Three weeks later, when speaking to Dave Portnoy, Tenev admitted that the

demand-side only trading halt was not implemented to avoid “piss[ing] off” customers eager to

sell, as he had misrepresented to Elon Musk on January 31st. Instead, Tenev rather bluntly

admitted that a complete freeze of trading – which would have been fair to all market participants

– would not have helped Robinhood meet its NSCC deposit requirements:

Portnoy: When you force people to sell . . . you only allow them to sell but they
can’t buy, you cratered the stock, like that was the decision that cratered the stock,
and I saw your quote, “People get pissed off if they are holding stock, and they
can’t sell it.” Which I guess is true, but I guarantee you, if you polled your customer
base, and said, listen, we’re just gonna freeze it. Like when the market is
tumultuous, they freeze stock, so you can’t buy or sell, it’s just frozen at that value.
And you have your client base, all buying it; they would have rather said, freeze it,
just figure out what you’re [Robinhood’s] issues are, liquidity, whatever they may
be; figure it out, and then turn it back on and let me buy and sell, but you – and
when I say you, Robinhood – manipulated that stock price. You cratered it . . . So
how do you rationalize not freezing it? . . . You cratered the market.

Tenev: Well, first of all, let me say that we’re speculating now . . .

Portnoy: There’s no speculation that when you only allow somebody to sell a stock
and not buy it, you crater it. That’s not speculation.

Tenev: Let me explain the reason why that’s kind of standard procedure.

Portnoy: Have you done that before? Standard procedure?

Tenev: Well, PCO’ing, marking a stock position closing only, is a standard
procedure, and it’s what the other brokers did in this case as well . . . It actually
comes from the capital requirements. The VaR formula was in this case driven by
the one-sided long position, so it actually wouldn’t help us; wouldn’t help the
deposit requirements to restrict selling in this case …. Restricting selling wouldn’t
help the exponential growth in the deposit requirements …

Portnoy: I still don’t feel like I got a straight answer why you didn’t do both [restrict
buying and selling], except you’re saying it’s standard procedure?

Tenev: Because the VaR charge, which drives our deposit requirements, was driven
by the size of the long position.

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104. When discussing a “freeze” on all stock transactions during a “tumultuous” period,

Portnoy was referencing an industry-wide protocol. Since 2012, when it was initially approved as

a pilot program, there has been in place a National Market System Plan, known as the Limit

Up/Limit Down Plan (“LULD Plan”), to address extreme market volatility. The LULD Plan,

which became a permanent rule in 2019, is administered by the LULD Operating Committee, an

entity that includes numerous exchanges and FINRA. The Plan and all amendments are filed with

and approved by the SEC in accordance with the Securities Exchange Act of 1934. Periodic

monitoring and performance reports are filed with the SEC and made available to the public.

105. The LULD Plan sets forth specific rules to be followed to rein in extreme intraday

price movements while ensuring that trading remains fair for all. As explained on investor.gov, a

SEC site, depending upon the issuer, time of day, and market price (for some stocks), if shares

trade for too long at the upper or lower limit of a trading band, a five-minute pause will ensue:

Limit Up-Limit Down Circuit Breaker (Single Stock Circuit Breaker) – The
Limit Up-Limit Down circuit breaker (“LULD”) is a market volatility moderator
designed to prevent large, sudden price moves in a stock. In particular, it prevents
trades in individual securities from occurring outside of a specified price band. This
price band is set at a percentage level above and below the average price of the stock
over the immediately preceding five-minute trading period. If the stock’s price
moves to the price band and does not move back within the price bands within 15
seconds, trading in the stock will pause for five minutes. These price bands are 5%,
10%, 20%, or the lesser of $.15 or 75%, depending on the price of the stock and
whether the stock is designated as a Tier 1 or Tier 2 NMS stock. Tier 1 NMS stocks
include all securities in the S&P 500, the Russell 1000 and select Exchange Traded
Products. Tier 2 NMS stocks include all other NMS securities, except for rights and
warrants, which are specifically excluded from coverage. The LULD applies during
regular trading hours from 9:30 am ET – 4:00 pm ET. The LULD’s price bands
double during the last 25 minutes of the regular trading day for (i) all Tier 1 NMS
stocks and (ii) Tier 2 NMS stocks at or below $3.00.

106. According to the SEC Staff’s investigation, there were 19 LULD trading pauses for

GameStop on January 28, 2021 – 13 at the lower bound and 6 at the upper bound of the price

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band. 61 As the LULD Plan demonstrates, our national exchanges have acted together for almost a

decade to both limit and fine-tune restrictions on the freedom to trade. Robinhood’s unilateral

manipulation of demand – not, as initially claimed, because those of its customers wanting to sell

would be “pissed off,” but because only purchase risk affects the VaR charge Robinhood sought

desperately to reduce – disrupted and distorted free-market pricing for the Affected Stocks that

would otherwise only be limited (when necessary) by orderly operation of this circuit-breaker

mechanism to briefly halt all trading.

February 1, 2021

107. On Monday, February 1, 2021, having raised $2.4 billion over the weekend,

Robinhood loosened the restrictions it imposed on Friday, January 29, 2021. Shrinking the list

back down from 50, Robinhood still enforced restrictions on trading for seven of the 13 issuers it

PCOed on January 28th. Brazenly, having gotten away with it for two trading sessions, Robinhood

added one issuer to the list for the first time, Genius Brands (GNUS), a children’s media company.

As reported by CNBC, the issuers and the newly imposed limits were as follows:

61
SEC Staff Report at 39 & n. 113.

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108. The disproportionate impact Robinhood’s actions had on the markets for the

Affected Stocks while its restrictions were in place was acknowledged in the financial press. In an

article published by the Wall Street Journal at 6:05 a.m. on February 1st, entitled “Robinhood

Stocks Rise Premarket,” author Caitlin Ostroff noted that after Robinhood relaxed restrictions in

the overnight hours, by 6:00 a.m., “[t]welve of the 13 stocks that Robinhood Markets had

restricting trading in last week jumped premarket.” More broadly, at 5:51 a.m. that day, a popular

online investment site, The Motley Fool, published an article entitled “The Top 50 Robinhood

Stocks of February.” This is a recurring article, published at the beginning of each month, listing

the 50 most-held stocks of Robinhood investors in the prior month. No similar articles are

published about the stocks held by customers of any other online retail broker.

109. Also on Monday, February 1, 2021, Robinhood posted a blog on its site informing

customers that a group of investors – led by Ribbit Capital and including ICONIQ Capital,

Sequoia Capital, Index Ventures and New Enterprise Associates – had infused Robinhood with

an additional $2.4 billion in capital. Robinhood stated: “With this funding, we’ll build and

enhance our products that give more people access to the financial system.”

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110. As for increasing its current customers’ access to purchase all stocks free of

restrictions, having survived the maelstrom of January 28th and January 29th, Robinhood appeared

unwilling to risk another upward spike in meme stock prices that would require it to deposit much

of the capital it had just raised with the NSCC. Restrictions on eight issuers remained in place.

111. Before trading closed on February 1, 2021, Politico reported that Tenev was going

to deliver Robinhood’s message to its biggest audience yet: On February 18, 2021, he would

likely be called to testify before the U.S. House of Representatives Financial Services Committee.

February 2, 2021

112. On February 2, 2021, Robinhood again eased but did not lift all restrictions it had

put in place five days earlier. CNBC again reproduced Robinhood’s restricted securities chart:

113. CNBC specifically noted that an immediate difference in GameStop’s stock price

appeared to be triggered by a five-fold increase in the upper limit of GameStop shares Robinhood

customers could purchase and hold, i.e., customers could purchase 100 shares or increase their

total holdings to 100 shares: “Robinhood on Tuesday rolled back more of its trading limitations,

now allowing clients to buy up to 100 shares of GameStop. GameStop climbed off the lows as the

Robinhood changes were announced.”

114. On February 2, 2021, to get out of the hot seat, Robinhood decided to go on the

offensive against the existing trade settlement rules. As reported by Reuters, Tenev posted a blog

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on Robinhood’s website blaming the initial $3 billion demand by the NSCC on January 28th on

the uncertainties injected into the market by the fact that it takes two days to settle a trade, i.e.,

exchange money for shares, during which time deposits are required by clearinghouses to ensure

the trade settles regardless of whether either side of the transaction defaults (referred to as “T+2”).

Tenev wrote: “There is no reason why the greatest financial system the world has ever seen cannot

settle trades in real time. Doing so would greatly mitigate the risk that such processing poses.”

115. Tenev’s comments were designed to redirect customers’ and the public’s anger

from Robinhood to the “system,” attacking Wall Street’s manner of doing business to reclaim

Robinhood’s disrupter status. Tenev would repeat this strategy in his testimony before the House

Committee on Financial Services, with a section of his prepared remarks entitled: “Real-Time

Settlement: Big Changes Could Protect Small Investors.” While such a move might relieve the

strain on Robinhood’s liquidity, it would greatly damage the overall liquidity of the financial

markets.

116. DTCC CEO Bodson’s testimony before Congress provided many reasons why

moving to T+0 or Real Time Gross Settlement (“RTGS”) was not within the capability or the

desire of various stakeholders in the financial markets:

Substantial procedural hurdles remain for a move to T+0. Beyond T+0, a move to
RTGS would eliminate the substantial efficiencies of netting, which currently
compresses the amount of cash required to fund daily transactions at NSCC by over
98%. RTGS could require that transactions be funded on a trade-by-trade basis.
While this could eliminate most margin component charges for clearing members if
customers fully prefunded all trading activity, that prefunding would be difficult to
forecast as settlement obligations change in real-time. The heightened costs of the
substantial liquidity buffers required to support this approach could erode market
liquidity. Additionally, the real-time reconciliation and real-time stock records
required for either T+0 or RTGS would be difficult for the industry to implement.
There would be negative impacts to processing for short sales, the use of securities
lending as a financing tool, and institutional trade processing operations. For these
reasons, while NSCC is fully supportive of a shorter settlement cycle, NSCC does

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not believe the industry is ready to support shortening the settlement cycle beyond
T+1 at this time.

February 3, 2021

117. On February 3, 2021, Robinhood finally lifted restrictions on Express, Naked and

Nokia, and lifted the prohibition on purchases of fractions of a share of GameStop and AMC.

However, customers were still limited to purchases (and total holdings) of 500 shares of GameStop

and 5,500 shares of AMC.

118. Before the markets opened, CNBC.com reported “Robinhood moves forward with

first Super Bowl ad as brand crisis mounts.” With its balance sheet flush, Robinhood stated that

the Super Bowl spot “will kick off what the company says is its largest ever brand campaign.” For

yet another day, Robinhood would not remove all trading restrictions – which could require it to

deposit with the NSCC a portion of the billions of dollars it just raised should prices for those

issuers’ shares quickly rise. Instead, Robinhood spent its new funding on an ad campaign –

including a Super Bowl spot, one of the most expensive ad buys of the year. Barely avoiding

liquidation by the grace of the NSCC waiving the ECP charge through February 1st, which gave

Robinhood time to regroup and raise capital over the weekend, Robinhood dared to risk roiling the

markets yet again with an appeal for new customers during one of the country’s most-watched

broadcasts of the year.

119. That day, CNBC.com published a story entitled “Why investors were willing to

write Robinhood a $3 billion check during the GameStop chaos.” This story explained

Robinhood’s cocky behavior over the past three days. Author Kate Rooney interviewed three of

Robinhood’s investors, one of whom explained: “In spite of the trouble last week, the metrics

suggest retail trading is exploding and Robinhood is still the only game in town.” Even with the

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loss of customers who were injured or dismayed by Robinhood’s actions, shoring up Robinhood’s

balance sheet in the short term would reap big results down the road:

Robinhood’s ability to add hundreds of thousands of new customers during a week
of chaos, along with its IPO prospects, convinced Silicon Valley backers that a
multi-billion-dollar cash infusion was worth it.

***
One venture capital investor who saw the internal growth metrics last week said the
flood of new investors “far outweighed” any attrition. Robinhood was the top app in
the iOS app store for multiple days. It also led the industry in app downloads by a
wide margin with 600,000 people downloading the free-trading app, according to
JMP Securities analysis.

The explosive customer growth during the pandemic that culminated in adding 600,000 customers

in a matter of days might have gone unnoticed had Robinhood not used its market power to

manipulate and depress stock prices. Robinhood’s national PR disaster showed investors that

Robinhood stood alone as the app used by an overwhelming majority of retail traders.

120. Because hedge funds and venture capitalists saw Robinhood as “the only game in

town,” when asked whether the backlash against Robinhood would delay its IPO plans, one

unnamed banker said: “The [Robinhood] IPO is full steam ahead.” 62

February 4, 2021

121. As the markets opened on February 4, 2021, Robinhood continued to impose the

same restrictions on purchases and total holdings of GameStop and AMC, 500 and 5,500 shares,

respectively. By the end of the day, GameStop shares fell to $53.50, the lowest close since January

21st, a whopping $294 less than the January 27th closing price of $347.51 Similarly, AMC shares

closed at $7.09, the lowest closing price since January 26th’s close of $4.96, and a greater than

62
Luisa Beltran, “Robinhood to Push Forward With IPO Despite Backlash Over GameStop
Trading,” Barron’s (Feb. 2, 2021).
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64% drop from the closing price of $19.90 on January 27th. Late in the day on February 4th, after

six days of limiting stock purchases, Robinhood posted a message on its website announcing:

“There are currently no temporary limits to increasing your positions.”

122. When Robinhood Securities told the NSCC that it would impose “temporary”

purchasing restrictions on the morning of January 28, 2021, to avoid payment of an excess capital

premium charge so large that Robinhood would be forced to liquidate (a charge that was instead

completely waived through February 1st), no one could have ever imagined that such restrictions

would have lasted, in one form or another, for six entire trading sessions. After all, on the occasions

when they are triggered, legitimate LULD trading halts last only for a matter of minutes.

123. Apparently, Robinhood has a very fluid perception of time: Its founders developed

trading technology that reduced tick-to-trade latency time for hedge funds and market makers

down to as low as five microseconds – the more infinitesimal the better, or else you will lose the

opportunity to an even faster trader. Yet, somehow, Robinhood told its customers with a straight

face that restrictions that lasted from the morning of January 28th through the close of trade on

February 4th were only “temporary”.

124. After Robinhood prohibited purchases (January 28th), then loosened and

retightened restrictions (January 29th), only to gradually lift the restrictions on its trading platform

over the course of the next week (February 1st – 5th), the price of the Affected Stocks were

depressed by Robinhood artificially restricting demand:

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Closing Closing Closing Closing Closing Closing Closing
price price price price Feb. price Feb. price Feb. price Feb.
Jan. 27, Jan. 28, Jan. 29, 1, 2021 2, 2021 3, 2021 4, 2021
2021 2021 2021

AMC (AMC $19.90 $8.63 $13.26 $13.30 $7.82 $8.97 $7.09
Entertainment
Holdings Inc.)
BB $25.10 $14.65 $14.10 $14.63 $11.55 $12.00 $12.15
(BlackBerry
Ltd.)
BBBY (Bed $52.89 $33.64 $35.33 $30.26 $25.38 $28.02 $27.01
Bath &
Beyond Inc.)
EXPR $9.55 $4.70 $6.00 $5.00 $3.38 $3.56 $3.28
(Express Inc.)

GME $347.51 $193.60 $325.00 $225.00 $90.00 $92.41 $53.50
(GameStop
Corp.)
KOSS (Koss $58.00 $41.96 $64.00 $35.00 $20.00 $25.59 $18.80
Corp.)
NOK (Nokia $6.55 $4.69 $4.56 $4.89 $4.53 $4.70 $4.37
Oyj)
TR (Tootsie $41.25 $37.33 $38.10 $35.87 $29.84 $30.84 $30.25
Roll Industries
Inc.)
TRVG $3.19 $2.48 $2.52 $2.38 $2.33 $2.51 $2.40
(Trivago N.V.)

125. For an entire week, Robinhood manipulated the market prices of the Affected

Stocks by restricting the extraordinarily high trading frequency of its 15 million customers. Those

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who sold or were forced to sell 63 during the trading days in which Robinhood’s manipulative

actions depressed the market prices of the Affected Stocks lost tens of billions of dollars.

Post-Class Period Events

126. On July 29, 2021, Robinhood Markets, Inc. conducted its initial public offering of

shares on the NASDAQ exchange and raised $2 billion. Following the IPO debut at $38 per share,

Robinhood’s balance sheet was significantly strengthened; its market value was $32 billion.

Speaking that day on CNBC, Tenev initially avoided answering questions about any lessons

Robinhood learned following the events of late January and early February. When he finally did,

his comments showed a callous lack of concern about the market chaos and financial damages

Robinhood’s actions caused its customers and others who sold the Affected Stocks at a loss:

MORGAN BRENNAN: Vlad, it’s Morgan. Congratulations today.

TENEV: Thank you.

BRENNAN: I asked this question, though hindsight is 20/20, but if you could, could
go back to January, would you have done things differently?

TENEV: I would say it’s, you know, there’s always things we could have done better
and I’m the, I’m the first to say that but it’s, it’s been an amazing six months and it
really 18 months and much, much more than that …

***

DAVID FABER: Vlad, it’s David Faber. Final question from us here at the NYSE.
You know, Morgan had asked you about that January period I mean, what did you
take away from that? You know, you’re a technology company but you’re a financial
technology company and when those peak margin calls were coming in with big
volume, you know, what did you learn about being the financial part of a technology

63
By increasing the margin requirement on the Affected Stocks, some who had purchased the
securities on a margin loan were forced to sell or face a margin call.

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company and all the regulations and all the things that come along with that and how
are you going to apply it now?

TENEV: I think in those, in those short few weeks around end of January, early
February, we certainly learned a lot. We got a whole lot of work done strengthening
everything across the board not just the balance sheet but customer support. We
made it a lot easier for customers that want to come back to the service …

127. Closer to the events, appearing before the House of Representatives Committee

on Financial Services on February 18th, Tenev more contritely testified: “[A]t the end of the day,

what happened is unacceptable to us. For our customers, I’m sorry and I apologize. Please know

that we are doing everything we can to make sure this won’t happen again.” A company valued

at tens of billions of dollars is required to do more in response to the financial damages it caused

than promise to do better next time. Instead, Robinhood needs to emulate its namesake and give

to the poor, to wit, provide redress to injured investors made poorer by Robinhood’s actions.

PLAINTIFFS’ CLASS ACTION ALLEGATIONS

128. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a class consisting of persons or entities who held common

stock in AMC Entertainment Holdings, Inc. (“AMC”), Bed Bath & Beyond Inc. (“BBBY”),

BlackBerry Ltd. (“BB”), Express Inc. (“EXPR”), GameStop Corp. (“GME”), Koss Corp.

(“KOSS”), Tootsie Roll Industries Inc. (“TR”), or American Depositary Shares of foreign-issuers

Nokia (“NOK”) and trivago N.V (“TRVG”) (collectively “the Affected Stocks”) as of the close

of trading on January 27, 2021, and sold at a loss between January 28, 2021, and February 4, 2021

(the “Class”). Excluded from the class are the defendants, the officers and directors of defendants,

members of their immediate families and their legal representatives, heirs, successors or assigns

and any entity in which defendants or any excluded persons have or had a controlling interest.

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129. The members of the Class are so numerous that joinder of all members is

impracticable. The Affected Stocks were actively traded on the Robinhood trading platform via

the NASDAQ and NYSE. While the exact number of Class members is unknown to Plaintiffs at

this time and can be ascertained only through appropriate discovery, Plaintiffs believe that there

are hundreds, if not thousands of members in the proposed Class.

130. Plaintiffs’ claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by defendants’ wrongful conduct in violation of

federal law that is complained of herein.

131. Plaintiffs will fairly and adequately protect the interests of the members of the

Class and have retained counsel competent and experienced in class and securities litigation.

Plaintiffs have no interests antagonistic to or in conflict with those of the Class.

132. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

• whether defendants engaged in manipulative acts as alleged herein;

• whether defendants’ acts distorted the price of the Affected Stocks;

• whether defendants misrepresented material facts or mislead due to their omission;

• whether the members of the Class have sustained damages and, if so, what is the

proper measure of damages.

133. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class members may be relatively small, the expense and

burden of individual litigation make it impossible for members of the Class to individually redress

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the wrongs done to them. There will be no difficulty in the management of this action as a class

action.

134. Investors will rely, in part, upon the presumption of reliance established by the

fraud-on-the-market doctrine in that:

• Defendants made public misrepresentations or failed to disclose facts during the

Class period;

• the omissions and misrepresentations were material;

• the Affected Stocks were traded in efficient markets;

• the Affected Stocks were liquid and traded with moderate to heavy volume during

the Class Period;

• the Affected Stocks were traded on national exchanges such as the NASDAQ and

NYSE, and were covered by analysts;

• Investors and members of the Class sold the Affected Stocks during the Class

period without knowledge of the omitted or misrepresented facts; and

• unexpected material news about the Affected Stocks was rapidly reflected in and

incorporated into each company’s stock price during the Class period.

135. Based upon the foregoing, members of the Class are entitled to a presumption of

reliance upon the integrity of the market for the Affected Stocks.

COUNT I
Violations of Section 9(a) of the Exchange Act
Against Defendants
136. Plaintiffs repeat and reallege each and every allegation contained in the foregoing

paragraphs as if fully set forth herein.

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137. The Robinhood Defendants affected and distorted the normal market dynamics for

the Affected Stocks by: (a) canceling purchase orders for the Affected Stocks placed before the

markets opened for trading on January 28, 2021; (b) closing out options positions in AMC and

GME early; (c) prohibiting and later restricting purchases of the Affected Stocks on the

Robinhood trading platform and (d) abruptly raising margin requirements for Robinhood’s

customers, forcing those who could not meet the margin calls for the Affected Stocks to sell some

or all of their holdings.

138. By preventing Robinhood customers from purchasing the Affected Stocks,

Robinhood sought to ensure that it could meet its deposit requirements with the NSCC.

Robinhood knew that distorting the demand side of the market for the Affected Stocks in this

manner would depress the prices of those shares.

139. While engaging in these manipulative acts that depressed the prices of the Affected

Stocks, Robinhood intentionally omitted and/or misrepresented material facts to give the false

impression to Class members that the markets for the Affected Stocks were free of manipulation.

140. Plaintiffs would not have sold their Affected Stocks at a loss if not for defendants’

manipulation of the prices of the Affected Stocks.

141. As a direct and proximate result of defendants’ unlawful conduct, Plaintiffs and

members of the Class suffered damages in connection with their sales of the Affected Stocks.

COUNT II
Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder
Against All Defendants
142. Plaintiffs repeat and reallege each and every allegation contained in the foregoing

paragraphs as if fully set forth herein.

143. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made

untrue statements of material fact and/or omitted to state material facts necessary to make the
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statements not misleading; and/or (c) engaged in acts, practices, and a course of conduct which

operated as a fraud and deceit upon the owners of the Affected Stocks in violation of §10(b) of

the Exchange Act and Rule 10b-5. Defendants are sued as primary participants in the wrongful

and unlawful conduct charged herein.

144. Defendants’ actions with respect to all restrictions placed on purchases of the

Affected Stocks on the Robinhood platform during the Class Period constitutes a scheme to

defraud and/or a course of conduct that operates as a fraud.

145. Defendants’ malfeasance included the dissemination of information which they

knew or recklessly disregarded was materially false and/or misleading to induce the investing

public to believe that the market for the Affected Stocks was free of manipulation.

146. Defendants knew and/or recklessly disregarded that their actions to manipulate the

price of the Affected Stocks would cause damages to Plaintiffs and members of the Class.

147. As a direct and proximate result of defendants’ wrongful conduct, Plaintiffs and

members of the Class suffered damages in connection with their sales of the Affected Stocks.

148. Defendants, individually and in concert, furthered their scheme directly and

indirectly, by the use, means or instrumentalities of interstate commerce, the mails, and/or the

facilities of a national securities exchange.

149. By virtue of the foregoing, defendants have violated §10(b) of the Exchange Act,

and Rule 10b-5 promulgated thereunder.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, on behalf of themselves and the Class, pray for judgment and

relief as follows:

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(a) declaring this action to be a proper class action under Rule 23 of the Federal Rules

of Civil Procedure;

(b) awarding damages in favor of Plaintiffs and the other Class members against all

defendants, jointly and severally, together with interest thereon;

action, including counsel fees and expert fees; and

(d) awarding Plaintiffs and other members of the Class such other and further relief as

the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: November 30, 2021 Respectfully submitted,

THE ROSEN LAW FIRM, P.A.
Laurence M. Rosen, FBN# 0182877
Robin Bronzaft Howald
Michael A. Cohen

By: /s/Laurence M. Rosen
Laurence M. Rosen, Esq.
275 Madison Avenue 40th Floor
New York, New York 10016
Tel: (212) 686-1060
Fax: (212) 202-3827
Email: lrosen@rosenlegal.com

Counsel for Lead Plaintiff Blue Laine-Beveridge and
Named Plaintiffs Abraham Huacuja, Ava Bernard,
Brandon Martin, Brendan Clarke, Brian Harbison,
Cecilia Rivas, Garland Ragland Jr., Joseph Gurney,
Santiago Gil Bohórquez and Trevor Tarvis

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