Plaintiffs' Opposition to Defendants Robinhood Markets, Inc., Robinhood Financial LLC and Robinhood Securities, LLC's Motion to Dismiss the Consolidated Class Action Complaint — In re January 2021 Short Squeeze Trading Litigation (Dkt. 454, S.D. Fla.)

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Plaintiffs' Opposition to Defendants Robinhood Markets, Inc., Robinhood Financial LLC and Robinhood Securities, LLC's Motion to Dismiss 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 454, 47 pages), in the U.S. District Court for the Southern District of Florida, entered January 28, 2022. Plaintiffs describe Robinhood as a retail broker that built a customer base by simplifying and gamifying trading, then found itself grossly undercapitalized. The opposition rejects Robinhood's explanation that its Class Period conduct followed standard procedure to comply with regulatory requirements, and argues that Robinhood used its market power to manipulate the Affected Stocks.

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Date: 2022-01-28

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“Plaintiffs' Opposition to Defendants Robinhood Markets, Inc., Robinhood Financial LLC and Robinhood Securities, LLC's… (Dkt. 454).” Original at archive.org, dated 2022-01-28. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2022-01-28-a-t-brod-co-v-perlow/, SHA-256 9c0c02d59662b6f3e260646c9ee458ee5a1a9d957dbbb83a906dac9c2b9302f9.

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA

CASE NO. 21-2989-MDL-ALTONAGA/Torres

This Document Relates to: All Actions Involving the Federal Securities Laws

PLAINTIFFS’ OPPOSITION TO DEFENDANTS
ROBINHOOD MARKETS, INC., ROBINHOOD FINANCIAL LLC AND
ROBINHOOD SECURITIES, LLC’S MOTION TO DISMISS THE
CONSOLIDATED CLASS ACTION COMPLAINT

In re: JANUARY 2021 SHORT SQUEEZE
TRADING LITIGATION

Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 1 of 47

TABLE OF CONTENTS

I. INTRODUCTION........................................................................................................... 1

II. STATEMENT OF FACTS ............................................................................................... 2

A. Robinhood Acquires Market Power: The Rise of Robinhood and its History of
Deception .................................................................................................................... 2

B. Robinhood Uses its Market Power to Manipulate the Affected Stocks and Save
Itself ............................................................................................................................. 4

C. Robinhood Profits Spectacularly From its Market Power ......................................... 7

III. ARGUMENT.................................................................................................................. 8

A. The Federal Securities Laws Are to Be Broadly Interpreted to Provide Relief in
Market Manipulation Cases ........................................................................................ 8

B. Robinhood’s Purchase Restrictions Violated Rule 10b-5 .......................................... 11

1. Robinhood engaged in multiple manipulative acts ............................................... 12

a. Robinhood sent false pricing signals to the market ........................................... 13

b. The fact that manipulative purchase prohibitions and restrictions were
disclosed does not shield Robinhood from liability ............................................ 14

2. To save its business, Robinhood intentionally altered the natural forces of supply
and demand for the Affected Stocks to reduce its required NSCC deposit ............ 17

a. Robinhood knew or was severely reckless in not knowing that its actions would
distort the natural forces of supply and demand ................................................ 18

b. Robinhood’s financial desperation is evidence of scienter ................................. 20

c. Mischaracterizing Robinhood’s actions as “standard operations” provides
additional evidence of intent ............................................................................... 23

C. Robinhood Violated §9(a) of the Exchange Act ....................................................... 25

1. Plaintiffs’ state a claim pursuant to §9(a)(2) ......................................................... 25

a. Robinhood engaged in a series of transactions that depressed the price of the
Affected Stocks .................................................................................................... 26

Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 2 of 47

b. Robinhood intended to reduce its NSCC requirements by driving down share
prices .................................................................................................................... 28

c. Robinhood induced Plaintiffs to sell their shares ............................................... 30

2. Plaintiffs state a claim pursuant to §9(a)(4) .......................................................... 30

a. Robinhood was severely reckless in failing to inform customers of the NSCC
deposit requirement in its statements on the morning of January 28 ............... 31

b. Robinhood publicly dissembled about its liquidity crisis while it privately
searched for capital to keep the doors open ....................................................... 36

IV. CONCLUSION ............................................................................................................. 39

Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 3 of 47

iii

TABLE OF AUTHORITIES
Page(s)
Cases
A. T. Brod & Co. v. Perlow,
375 F.2d 393 (2d Cir. 1967) ............................................................................................. 9

Affiliated Ute Citizens of Utah v. United States,
406 U.S. 128 (1972) .................................................................................................... 9, 12

Ashcroft v. Iqbal,
556 U.S. 662 (2009) ......................................................................................................... 8

Baum v. Phillips, Appel & Walden, Inc.,
648 F. Supp. 1518 (S.D.N.Y. 1986) ............................................................................ 8, 26

Bell Atl. Corp. v. Twombly,
550 U.S. 544 (2007) ......................................................................................................... 8

Brady v. Top Ships, Inc.,
17-cv-4987, 2019 WL 3553999 (E.D.N.Y. 2019) ........................................................... 15

Chemetron Corp. v. Bus. Funds, Inc.,
682 F.2d 1149 (5th Cir. 1982) ............................................................................. 11, 25, 31

Chemetron Corp. v. Bus. Funds, Inc.,
718 F.2d 725 (5th Cir. 1983) ........................................................................................... 11

City of Providence v. BATS Global Markets, Inc.,
878 F.3d 36 (2d Cir. 2017) ............................................................................................. 24

Cohen v. Stevanovich,
722 F. Supp. 2d 416 (S.D.N.Y. 2010) ........................................................................ 12, 15

Crane Co. v. Westinghouse Air Brake Co.,
419 F.2d 787 (2d Cir. 1969) ............................................................................................. 9

Ernst & Ernst v. Hochfelder,
425 U.S. 185 (1976) .......................................................................................................... 9

FindWhat Inv. Grp. v. FindWhat.com,
658 F.3d 1282 (11th Cir. 2011) ....................................................................................... 18

Flamenbaum v. Orient Lines, Inc.,
No. 03-22549-CIV, 2004 WL 1773207 (S.D. Fla. July 20, 2004) ................................ 12
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 4 of 47

Flynn v. Sientra, Inc.,
No. CIV 15-07548, 2016 WL 3360676 (C.D. Cal. Jun. 9, 2016) ................................... 21

GFL Advantage Fund, Ltd. v. Colkitt,
272 F.3d 189 (3rd Cir 2001) ..................................................................................... 11, 13

In re Barclays Liquidity Cross and High Frequency Trading Litig.,
390 F. Supp. 3d 432 (S.D.N.Y 2019) ............................................................................. 33

In re Blech Secs. Litig.,
928 F. Supp. 1279 (S.D.N.Y. 1999) ................................................................ 10, 11, 12, 14

In re Hamilton Bankcorp, Inc. Secs. Litig.,
194 F. Supp. 2d 1353 (S.D. Fla. 2002) ........................................................................... 24

In re Portal Software, Inc. Secs. Litig.,
No. C-03-5138, 2005 WL 1910923 (N.D. Cal. Aug. 10, 2005) ...................................... 21

Koch v. SEC,
793 F.3d 147 (D.C. Cir. 2010) ......................................................................................... 11

Kraft v. Third Coast Midstream, 19-CV-9398,
2021 WL 860987 (S.D.N.Y. Mar. 8, 2021) .................................................................... 15

Kuehnert v. Texstar Corp.,
412 F.2d 700 (5th Cir. 1969) ........................................................................................... 11

Nguyen v. Radient Pharms. Corp.,
2011 WL 13141630 (C.D. Cal. Oct. 26, 2011) ................................................................. 21

Rooney Pace, Inc. v. Reid,
605 F. Supp. 158 (S.D.N.Y. 1985) .................................................................................. 25

S.E.C. v. Zandford,
535 U.S. 813 (2002) ......................................................................................................... 8

Santa Fe Indus., Inc. v. Green,
430 U.S. 462 (1977) ....................................................................................................... 10

Schultz v. Applica Inc.,
488 F. Supp. 2d 1219 (S.D. Fla. 2007) ........................................................................... 38

SEC v. Conaway,
698 F. Supp. 2d 771 (E.D. Mich. 2010).......................................................................... 23

Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 5 of 47

SEC v. Lek Securities Corp.,
276 F. Supp. 3d 49 (S.D.N.Y. 2017) ......................................................................... 13, 26

SEC v. Masri,
523 F. Supp. 2d 361 (S.D.N.Y. 2007) ............................................................................. 15

SEC v. Resch-Cassin & Co.,
362 F. Supp. 964 (S.D.N.Y. 1973) ............................................................................ 12, 25

Set Capital, LLC. v. Credit Suisse Group AG,
996 F.3d 64 (2d Cir. 2021) .................................................................................. 12, 15, 16

Sharette v. Credit Suisse Int’l.,
127 F. Supp. 3d 60 (S.D.N.Y. 2015) .................................................................... 14, 15, 24

Skiadas v. Acer Therapeutics Inc.,
1:19-cv-6137, 2020 WL 3268495 (S.D.N.Y. June 16, 2020) ......................................... 21

South Cherry Street, LLC v. Hennessee Group LLC,
573 F.3d 98 (2d Cir. 2009) ............................................................................................ 20

Spencer Cos. v. Agency Rent-A-Car, Inc.,
No. 81-2097-S, 1981 WL 1680 (D. Mass. Sept. 21, 1981) .............................................. 30

Sterne, Agee & Leach, Inc. v. Nat'l. Sec. Clearing Corp.,
No. CV-07-BE-909-S, 2008 WL 11424178 (N.D. Ala. Sept. 30, 2008) ........................ 10

Stevens v. GlobeTel Comm’ns. Corp.,
No. 06-21071-CIV, 2007 WL 9701197 (S.D. Fla. Apr. 4, 2007) .............................. 20, 31

Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308 (2007) ........................................................................................................ 17

Trane Co. v. O’Connor Secs.,
561 F. Supp. 301 (S.D.N.Y. 1983)................................................................................... 15

Zwick Partners, LP v. Quorum Health Corp.,
2018 WL 2933406 (M.D. Tenn. Apr. 19, 2018)............................................................. 21
Statutes
15 U.S.C. §78u-4(b)(2)(A) .................................................................................................. 17

15 U.S.C. § 78u-4(b)(1) ...................................................................................................... 31
Rules
Fed. R. Civ. P. 9(b) ............................................................................................................ 10
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 6 of 47

Fed. R. Civ. P. 12(b)(6) ........................................................................................................ 7
Regulations
17 C.F.R. §240.10b-5(a)&(c) ............................................................................................... 11

Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 7 of 47

I.
INTRODUCTION
At bottom, this is a case about a retail broker that built up a tremendous customer
base – by simplifying and gamifying the trading experience to attract first-time investors
– desperately trying not to become a victim of its own success when it inexcusably found
itself grossly undercapitalized. The explanation for Robinhood’s1 conduct, made both
after the financial tsunami it caused, and in its motion to dismiss the complaint,2 is that
what Robinhood did during the Class Period followed “standard procedure” to comply
with regulatory requirements. Untrue. None of what Robinhood did during the class
period resembles “standard” broker behavior.
The misconduct that enabled Robinhood’s five-year rise to prominence as the
preeminent retail broker, as well as it its one-week decision to use that dominance to
manipulate the prices of the Affected Stocks to save itself from liquidation, demonstrate
that Robinhood fits the stereotype of a Silicon Valley start-up: Move fast and break things;
let others clean up the mess as you hustle past to the IPO finish line:
“They were trying to change the rules of the road without understanding
how the road was paved and without any respect for the existing guard
rails,” said Chris Nagy, a former trading executive at TD Ameritrade and the
co-founder of the Healthy Markets Association, a nonprofit that seeks to
educate market participants. “It ended up creating risk for their customers
and systemic risk for the market more broadly.”3

1 Defendants Robinhood Markets, Inc., and its subsidiaries, Robinhood Financial, LLC
and Robinhood Securities, LLC are collectively referred to as “Robinhood.”
2 Citations to the Consolidated Class Action Complaint (“complaint”) (Dkt. 446) are to
“¶_”. Robinhood’s Motion to Dismiss (Dkt. 449) is referred to herein as “MTD”.
3 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 January
27, 2022, at https://www.nytimes.com/2021/01/30/business/robinhood-wall-street-
gamestop.html). The article is cited in the complaint at ¶94 & n.57.
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Robinhood deceived and let down the “everyday” Americans that it claimed to
empower. The core mission of the federal securities laws is to protect small investors by
ensuring a market ruled by the natural forces of supply and demand rather than by
cunning market manipulation. Congress enacted the Securities Exchange Act of 1934 to
prevent just this sort of scheme.
II.
STATEMENT OF FACTS
A.
Robinhood Acquires Market Power: The Rise of Robinhood and
its History of Deception
Although Robinhood takes pride in the fact that it pioneered commission-free
trading for retail investors, for years it went to great lengths to conceal the fact that most
of its revenue comes from selling its customer orders to several market makers, through
lucrative deals known as “payment for order flow” (“PFOF”), a controversial practice
banned in other countries because it pits a broker’s interest against those of its customers.
This is especially true for Robinhood, which reversed the 80-20 split customarily taken
by brokers from the volume discount received from the market-maker, keeping 80% of
PFOF and allocating only 20% to a customer discount. As a result of hiding PFOF revenue
from customers and violating its duty to obtain “best execution” prices for their trades, in
December 2020, Robinhood paid the SEC $65 million, agreeing to a Cease & Desist Order.
¶¶31-34.4 Six months later, FINRA fined Robinhood a record $70 million for, inter alia,
using bots to clear customers for options trading, and for failure to supervise the
technology relied upon to provide core broker-dealer services, causing multiple outages,
including for 26 hours on March 2-3, 2020. ¶¶35 n.13, 38 n.17. A 6-year-old brokerage

4 In August 2021, the SEC sought public comment about gamification being used to
induce frequent trading, a practice of which Robinhood has been accused. ¶34 & n.11.
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 9 of 47

being fined $135 million is not “standard”.
Heading into 2021, Robinhood was adding new traders at an accelerating pace –
increasing its customer base to 12.5 million accounts, with several million daily active
traders – dwarfing the combined number of active daily users of all its competitors. ¶¶39,
94. In early December, it was reported that Robinhood had selected Goldman Sachs to
lead its IPO in 2021. Id. At the same time, a rise in so-called “meme stock” prices occurred
in January 2021, allegedly because retail investors banded together to squeeze hedge
funds that had taken large short positions in various of the Affected Stocks.5 ¶40. As
Robinhood’s customers piled into these stocks, CEO Tenev continued to champion
Robinhood’s ability to enable “everyday” Americans to trade and share in the market rally
– penning a column and appearing on CNBC on January 27. That day, when it was already
struggling mightily to manage exploding risk, ¶42, Robinhood hit the top spot in the app
store for the first time, with 120,000 downloads. ¶¶44-47.
As it attracted customers new to investing, Robinhood developed a problem as a
member of the NSCC. ¶58. The NSCC is a clearinghouse that collects collateral from its
members to secure the completion of trades in the two days it takes trades to settle. ¶¶58,
114-16. Because the NSCC is responsible for unsettled trades, it monitors the risk in its
members’ unsettled portfolios, and makes capital calls accordingly. ¶58. NSCC capital
requirements have two components: a core clearing fund charge, consisting primarily of
the value at risk charge (“VaR”), based on the estimated risk in the member’s unsettled
portfolio, and an excess capital premium charge (“ECP”) which compares the member’s
excess net capital to its core charges. ¶58. To avoid incurring an ECP, the member must

5The Affected Stocks’ symbols are: AMC, BB, BBBY, EXPR, GME, KOSS, NOK, TR, TRVG.
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 10 of 47

either reduce the risk in its unsettled portfolio or raise additional capital. Id. If a member
cannot meet capital requirements, it is subject to liquidation. ¶122.
As the prices of the Affected Stocks soared in late January 2021, Robinhood
became increasingly concerned, internally, about its financial ability to handle the
massive volume of trading. ¶42 (January 23 email discussing plan to handle Robinhood’s
risk asks whether Robinhood should consider the impact of the plan on customers, who
may be self-directed but are “relatively inexperienced”). Robinhood begun to ratchet up
restrictions, raising both initial and maintenance margin requirements for GME and
AMC. ¶¶13(a)&(b); 42. Yet it continued to add customers at a record pace. Id. at ¶47. That
is not “standard” broker procedure.
B.
Robinhood Uses its Market Power to Manipulate the Affected
Stocks and Save Itself
In the early morning hours of January 28 – after Citadel Securities, the largest
source of Robinhood’s revenue ($326 million in 2020), dictated across-the-board PFOF
cuts ¶¶49-51, and anticipating a massive capital call from the NSCC - Robinhood acted
unilaterally to cancel in-the-money GME and AMC buy options expiring on January 29
before customers could decide whether to fund the purchase. ¶52. A few hours later, at
5:11 a.m. EST on January 28, Robinhood received a notice from the NSCC requiring an
additional $3 billion (a $700 million VaR charge plus a $2.2 billion ECP charge) to satisfy
its daily deposit requirement. ¶¶58, 59 & n.36. As this was far more than Robinhood could
pay, Robinhood Markets COO Gretchen Howard called this a “major liquidity issue” and
wrote in an internal chat that eight stocks were to be moved to PCO on the Robinhood
Financial platform, with all purchases prohibited. ¶59.
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Specifically, before the markets opened, Robinhood “proposed to the NSCC that,
as a temporary measure, it would limit customer purchases for volatile stocks that had
driven the increased deposit requirements.” ¶60. Following that discussion, the NSCC
exercised its discretion to waive Robinhood’s $2.2 billion ECP for the day – in fact, the
NSCC waived net capital charges through February 1, 2021, to allow the trades from both
January 27 and January 28 to work through the system. Only because of Robinhood’s
decision to halt purchases of volatile stocks and the NSCC’s waiver of the $2.2 billion ECP
was Robinhood was able to temporarily solve its “major liquidity issue,” meet the NSCC’s
greatly reduced deposit demand with an additional $700 million payment, and avoid
liquidation. ¶60. This is not “standard” broker procedure.6
When the market opened, Robinhood posted two vague blogs that referenced
market volatility and provided a list of stocks moved to position closing only (“PCO”).

6 Robinhood should have never been in the position it found itself on January 28, 2021.
As explained in an article by A. Massa, Y. Onaran & M. Leising, “Robinhood’s Collateral-
Crunch Explanation Puzzles Wall Street,” Bloomberg (Feb. 6, 2021):
A week after Robinhood Markets tried to clear the air by explaining why it slapped
controversial limits on trading hot stocks, Wall Street’s risk professionals are still
perplexed: How was the firm so ill-prepared for an obvious surge in collateral calls?
To the financial industry, anticipating collateral demands from hubs such as the DTCC
is Brokerage 101. Major firms assign teams to study the DTCC’s methodology, estimate
its requests and make sure ample cash is available. David Weisberger [has] been
puzzling over Robinhood, given what he called the ‘well known’ requirements of
clearinghouses. ‘This was a franchise threatening event.’”
Rejecting excuses from Robinhood’s Swartwout, that the events of the last week of
January 2021 were extraordinary, and CEO Tenev, for faulting the alleged opacity of the
NSCC’s formulae, the article continued: “The rejoinder from industry executives: It’s
pretty much just math … In interviews, more than a half dozen senior risk executives –
some from Wall Street’s largest firms – reacted with bemusement to any assertions that
the magnitude of the DTCC’s demands cannot be anticipated.”
https://www.bloomberg.com/news/articles/2021-02-06/robinhood-s-collateral-
crunch-explanation-puzzles-wall-street. Last accessed January 27, 2022. Plaintiffs
concede that this article was not cited in the complaint, but neither was the article cited
by Robinhood. MTD at 16 n.14. A copy of the article is attached as Exhibit A hereto.
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 12 of 47

¶¶62-63. Robinhood did not reveal that it closed out options (¶52), canceled orders placed
after markets closed on January 27 (¶72), and barred purchases of its customers’ most-
popular stocks because of its NSCC deposit requirements. Not surprisingly, the prices of
the Affected Stocks plummeted because of Robinhood’s unexplained decisions. Left in the
dark as to the true causes of Robinhood’s trading restrictions and seeing the prices of the
Affected Stocks rapidly fall, investors rushed to sell before the prices sunk even lower.
¶76. Robinhood’s actions were immediately and universally decried as market
manipulation. ¶69.
The image that Robinhood tried to project in advance of its planned IPO was not
one of a company saved from liquidation by both the grace of the NSCC’s deposit waiver
and Robinhood taking the extreme action – taken by no other retail brokers – to shut
down purchases of 13 stocks for an entire session. ¶67. When CEO Tenev appeared that
night on CNBC and explained, for the first time, that a NSCC deposit requirement had
dictated its actions, he was asked whether Robinhood had a liquidity problem. CEO Tenev
flatly denied it, claiming: “There was no liquidity problem. And to be clear this was done
pre-emptively, so we did this proactively[.]” ¶79.
Believing CEO Tenev’s statements that Robinhood’s actions were not evidence of
a liquidity problem and that Robinhood would “re-enable” purchases, premarket trading
activity on January 29 was high as investors looked forward to purchasing the Affected
Stocks. ¶83. While Robinhood had eased its complete prohibition on purchasing, as the
price of the Affected Stocks rose on January 29, Robinhood repeatedly restricted
customers’ ability to invest by lowering the number of shares customers could purchase.
¶¶84-88. Purchase limits imposed just around 12:30 p.m. and 2:30 p.m. caused an
immediate decline in the price of the Affected Stocks. ¶89. This distortion is directly
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attributable to Robinhood because no other broker restricted any stock’s purchase on
January 29 (¶90); by the end of the day, Robinhood had restricted 50. ¶87. While CEO
Tenev has repeatedly tried to justify extreme trading restrictions by claiming it was
“standard procedure,” Robinhood’s restrictions were far more extreme than any other
broker or clearinghouse. ¶¶92-93.
Robinhood was undercapitalized and had to stop the rally in the Affected Stocks
because the NSCC had only waived the ECP through the close of business on February 1.
Robinhood could have faced another liquidity crisis on February 2 if share prices had
continued to rebound on January 29. ¶91. Over the weekend, Robinhood raised $2.4
billion to meet its deposit requirements, but continued to retain various restrictions for
another four days. ¶¶107, 112, 117 & 121. By the end of the February 4 trading day, when
the “temporary” restrictions were finally lifted, tens of billions of dollars in market value
had been erased from the Affected Stocks. ¶125.
C.
Robinhood Profits Spectacularly From its Market Power
By February 1, only four days after its severe undercapitalization almost caused
Robinhood to close its doors, Robinhood had raised $3.4 billion in 96 hours –
significantly more that it had raised in the eight years since its founding. ¶9. In fact, one
of those lining up to inject capital saw Robinhood’s new customer metrics and concluded:
“Robinhood is still the only game in town.” ¶¶9, 119. Having weathered the storm,
Robinhood conducted its IPO on the NASDAQ in July 2021, raising an additional $2
billion. ¶126. While retail investors came away with staggering losses, 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 after all. ¶61.
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III.
ARGUMENT
Pursuant to Fed. R. Civ. P. 12(b)(6), for a complaint to withstand a motion to
dismiss, a plaintiff need only allege a “short and plain statement of his claim showing that
the pleader is entitled to relief,” to “give the defendant fair notice of what the ... claim is
and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007). “When there are well-pleaded factual allegations, a court should assume their
veracity and then determine whether they plausibly give rise to an entitlement to relief.”
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). As set forth below, Plaintiffs allege a set of
well-pled facts plausibly giving rise to an entitlement to relief against Robinhood.
A.
The Federal Securities Laws Are to Be Broadly Interpreted to
Provide Relief in Market Manipulation Cases
As Robinhood’s citation of cases spanning seven decades attests, by their nature,
market manipulation cases are relatively uncommon. For this reason, courts often begin
their analyses with a statement of Congress’s primary objective when §9(a) was enacted:
to protect small investors from being exploited by sophisticated actors. In Baum v.
Phillips, Appel & Walden, Inc., 648 F. Supp. 1518, 1529–30 (S.D.N.Y. 1986), aff'd sub
nom. Asch v. Philips, Appel & Walden, Inc., 867 F.2d 776 (2d Cir. 1989), a case Robinhood
cites (MTD at 24), the court explained:
“The central purpose of section 9(a) is … to keep an open and free market
where the natural forces of supply and demand determine a security’s
price.” [Citations] By enacting § 9(a), Congress “sought to protect the small
investor by maintaining a market controlled by natural forces rather than
by intervention of artificial manipulative devices....” Id. at 305.

The same reasoning applies in cases alleging violations of §10(b) and Rule 10b-5.
In S.E.C. v. Zandford, 535 U.S. 813, 819 (2002),7 the Supreme Court focused on the

7 In the text and quoted sources, we omit parallel citations for Supreme Court cases.
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 15 of 47

importance of policing the behavior of brokers (such as Robinhood):
Among Congress’ objectives in passing the Act was to “insure honest
securities markets and thereby promote investor confidence” after the
market crash of 1929. [Citations] More generally, Congress sought “ ‘to
substitute a philosophy of full disclosure for the philosophy of caveat
emptor and thus to achieve a high standard of business ethics in the
securities industry.’ ” Affiliated Ute Citizens of Utah v. United States, 406
U.S. 128, 151 (1972) (quoting SEC v. Capital Gains Research Bureau,
Inc., 375 U.S. 180, 186 (1963)).

Consequently, we have explained that the statute should be “construed ‘not
technically and restrictively, but flexibly to effectuate its remedial purposes.’
” 406 U.S., at 151 (quoting Capital Gains Research Bureau, Inc., 375 U.S.,
at 195).

In a similar vein, courts recognize that the application of the securities laws to
market manipulation cases must address the ever-changing means by which actors can
influence market pricing. In another case cited by Robinhood (MTD at 24), Crane Co. v.
Westinghouse Air Brake Co., 419 F.2d 787, 793 (2d Cir. 1969), the court noted:
We must determine the application of sections 9(a)(2) and 10(b) to the
relatively new device of the tender offer, rarely used before 1965, and to the
methods here used to combat it. [Citation] Manipulative schemes may
not be allowed to succeed solely because they are novel. A. T. Brod
& Co. v. Perlow, 375 F.2d 393 (2d Cir. 1967). (Emphasis added.)

In Ernst & Ernst v. Hochfelder, 425 U.S. 185, 202–03 (1976) (MTD at 13), rejecting a
negligence standard for scheme liability, the Supreme Court cited the legislative history
of the Exchange Act as evidence of intent to ban misconduct yet unknown:
…Thomas G. Corcoran, a spokesman for the drafters[,] indicated:
“Subsection (c) (s 9(c) of H.R. 7852 later s 10(b)) says, ‘Thou shalt not
devise any other cunning devices.’

“Of course subsection (c) is a catch-all clause to prevent
manipulative devices. I do not think there is any objection to that kind
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of clause. The Commission should have the authority to deal with new
manipulative devices.” [Citation]8 (Emphasis added.)

See also Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 477 (1977) (“No doubt Congress
meant to prohibit the full range of ingenious devices that might be used to manipulate
securities prices.”). In 1934, no one anticipated that small investors could one day buy
and sell stocks on a hand-held device or that a single broker would transact one of every
25 shares traded in the United States (and an even higher percentage of the Affected
Stocks), as Robinhood did, so that with the mere flip of a switch that broker could
suddenly turn off a significant portion of market demand for a particular stock.
Robinhood asks the Court to find the complaint wanting simply because it does not
fit into prior market manipulation fact patterns. See, e.g., MTD at 15, 24. Investors, media
outlets, and members of Congress loudly decried Robinhood’s blocking of purchases by
its 15 million customers as manipulation of the market for the Affected Stocks. Applicable
law should not be interpreted to preclude such market interference from its purview
simply because no one had dared to do it before.
For this reason, because “[a] claim for manipulation … can involve facts solely
within the defendant’s knowledge; … at the early stages of litigation, the plaintiff need not
plead manipulation to the same degree of specificity as a plain misrepresentation claim.”
Sterne, Agee & Leach, Inc. v. Nat'l. Sec. Clearing Corp., No. CV-07-BE-909-S, 2008 WL
11424178, at *11 (N.D. Ala. Sept. 30, 2008); In re Blech Secs. Litig., 928 F. Supp. 1279,
1290 (S.D.N.Y. 1999). Fed. R. Civ. P. 9(b) is satisfied if the complaint “sets forth, to the
extent possible, ‘what manipulative acts were performed, which defendants performed

8 Lest Robinhood suggest that only the SEC, not this Court, has authority to deal with
novel cunning devices, it bears noting that this legislative history pre-dated the implied
private right of action under §10(b) now embedded in our jurisprudence.
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 17 of 47

them, when the manipulative acts were performed, and what effect the scheme had on the
market for the securities at issue.’ ” Blech, 928 F. Supp. 2d. at 1291.
Finally, Robinhood is incorrect that a failure to state a manipulation claim under
§9(a) precludes stating a claim under Rule 10b-5(a)&(c). MTD at 23. On remand, after
the Supreme Court vacated Chemetron Corp. v. Bus. Funds, Inc., 682 F.2d 1149 (5th Cir.
1982) (“Chemetron I”), even though the “affecting the [sales] price” element of a §9(a)(4)
claim had not been proved, the Fifth Circuit reinstated the jury’s finding of a Rule 10b-5
violation. 718 F.2d 725, 728 (5th Cir. 1983) (“Chemetron II”); GFL Advantage Fund, Ltd.
v. Colkitt, 272 F.3d 189, 206 (3rd Cir 2001) (citing Chemetron II).9
B.
Robinhood’s Purchase Restrictions Violated Rule 10b-5
Robinhood’s efforts to manipulate the Affected Stocks during the class period
violated the scheme liability provisions of Rule 10b-5(a) and (c):
It shall be unlawful for any person, directly or indirectly, by the use of any
means or instrumentality of interstate commerce, or of the mails or of any
facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
***
(c) To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security.

17 C.F.R. §240.10b-5(a)&(c). To state a claim, a plaintiff must allege “(1) manipulative
acts; (2) damage (3) caused by reliance on an assumption of an efficient market free of
manipulation; (4) scienter; (5) in connection with the purchase or sale of securities; (6)

9 In fact, successful manipulation is not even required. Koch v. SEC, 793 F.3d 147, 153-
154 (D.C. Cir. 2010)(citing Kuehnert v. Texstar Corp., 412 F.2d 700, 704 (5th Cir. 1969)).
For this reason, Robinhood’s claim that Plaintiffs “cherry-picked” the stocks to include in
the complaint falls particularly flat. MTD at 10.
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furthered by the defendant’s use of the mails or any facility of a national securities
exchange. Set Capital, LLC. v. Credit Suisse Group AG, 996 F.3d 64, 75 (2d Cir. 2021).
Robinhood only contests the adequacy of two elements: manipulative acts and scienter.
MTD at 14.10 They are well pled; a Rule 10b-5 manipulation claim is adequately alleged.11
1.
Robinhood engaged in multiple manipulative acts
Stringing together quotations of principles from market manipulation cases,
Robinhood argues that pump-and-dump, wash sales, and tender offer cases “illustrate
these requirements.” MTD at 15-16, 18. They do, but in Blech, the court was not perturbed
that “classic attributes” of market manipulation were “missing”. 928 F. Supp. at 1297-98;
see also SEC v. Resch-Cassin & Co., 362 F. Supp. 964, 975 (S.D.N.Y. 1973) (“manipulative
activity is not confined to any particular kind of manipulation”).
Robinhood’s defense boils down to two arguments: (1) only deceptive conduct
sending false signals about a stock’s true value to unsuspecting traders is actionable; and
(2) because Robinhood acted in plain sight, there can be no finding of manipulation. MTD
at 15-19. Robinhood cannot prevail on either.

10 On reply, Robinhood should be precluded from challenging the adequacy of any
element of Plaintiffs’ claims not addressed in the opening brief. See Flamenbaum v.
Orient Lines, Inc., No. 03-22549-CIV, 2004 WL 1773207, at *14 (S.D. Fla. July 20, 2004)
(and cases cited therein).
11 The remaining elements are adequately alleged: Pleading a presumption of reliance
under the fraud-on-the-market doctrine is sufficient to allege this element of Plaintiffs’
§9(a), §10(b), and Rule 10b-5(a)&(c) claims. See Cohen v. Stevanovich, 722 F. Supp. 2d
416, 434 (S.D.N.Y. 2010). There is also a presumption of reliance under Affiliated Ute
Citizens v. U.S., 406 U.S. 128 (1972), for material omissions. Lead Plaintiff and Named
Plaintiffs allege they were damaged when they sold the Affected Stocks. Dkt. 366-3 and
Complaint at ¶¶1, 22, 142-49 & Ex. A. Contrary to Robinhood’s suggestion (MTD at 11),
Lead Plaintiff did not profit from Class Period sales. As a broker, Robinhood used
securities exchanges to effect its scheme. ¶¶52, 62.
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a.
Robinhood sent false pricing signals to the market
Robinhood asks the court to decide whether it “inject[ed] inaccurate information
into the marketplace or creat[ed] a false impression of supply and demand for the security
... for the purpose of artificially depressing or inflating the price of the security.” MTD at
15 (quoting GFL Advantage Fund, Ltd. v. Colkitt, 272 F.3d 189, 207 (3d Cir.2001)).
Without conceding that false signaling is required, Plaintiffs allege that Robinhood
created a false impression of actual demand for the Affected Stocks through actions taken
outside of public view, to wit: canceling purchase orders submitted after markets closed
on January 27 (¶62)12 and by preemptively closing out in-the-money options for GME and
AMC before customers could decide whether to transfer funds into their accounts to allow
for their exercise. ¶¶52-54. Robinhood also artificially increased supply of the Affected
Stocks by closing out positions due to an inability to meet new margin requirements. ¶125.
These non-public actions misrepresented the desires of Robinhood’s millions of
customers with respect to both purchases and sales of the Affected Stocks, deceiving
Plaintiffs as to their true value.
Robinhood contends that disclosed actions cannot give false signals – that its
customers received notice of canceled trades and involuntarily closed option and margin
positions, Robinhood announced purchase restrictions on blog posts, and the media
reported new margin requirements for Robinhood customers trading GME and AMC.
MTD at 16 & n.14 (Jan.27 article not cited in the complaint). This argument misses the
mark: even if customers and the investing public knew that Robinhood could engage in
these transactions, that is not the same thing as knowing the extent to which Robinhood

12 Cf. SEC v. Lek Securities Corp., 276 F. Supp. 3d 49, 62 (S.D.N.Y. 2017) (§9(a)(2)’s reach
extends beyond the actual consummation of purchases or sales).
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did so, thereby artificially altering the natural forces of supply and demand. See Blech,
928 F. Supp. at 1296-97 (rejecting “truth-on-the-market” defense because earlier
disclosure of defendants’ transactions in the Wall Street Journal did not reveal the “whole
story” about the manipulative scheme). In Blech, the transactions at issue were disclosed;
here, only Robinhood knows how many shares were transacted or when.
Indeed, this is precisely the type of information solely within the knowledge of the
manipulator. In Sharette v. Credit Suisse Int’l., 127 F. Supp. 3d 60 (S.D.N.Y. 2015),
defendant underwriter created a corporate finance vehicle for a company, ECD, that
allegedly enabled unnamed hedge funds to sell short massive amounts of borrowed shares
of ECD stock and to convert ECD notes to stock to cover the sales; these actions flooded
the market with shares, driving ECD’s share price below $1 and the company into
bankruptcy. Id. at 69-70. Noting that Credit Suisse was in possession of those details, the
court rejected the underwriter’s assertions that it did not trade and that plaintiffs had not
alleged any details about the transactions that depressed the price, e.g., the identity of the
hedge funds or the dates or amounts of their sales. Id. at 84-85.
Through the various actions it took behind the scenes – involuntary margin sales
and options and purchase order cancelations – to distort the natural forces of supply and
demand, Robinhood engaged in manipulative acts that sent false signals to the market
about its customers’ valuation of the Affected Stocks.
b.
The fact that manipulative purchase prohibitions and
restrictions were disclosed does not shield Robinhood
from liability
Robinhood argues that its purchase bans/restrictions, premature closing of option
positions, order cancelations, and involuntary margin sales between January 28 and
February 4 were not manipulative because they were disclosed and/or contractually
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permitted. MTD at 16.13 That is not the law: Small investors have a legal right to trade in
a market in which “natural forces of supply and demand” set prices; they cannot be
deprived of a legal remedy because these forces were openly manipulated. Investors saw
the prices of the Affected Stocks falling and sold into declining/depressed markets; while
generally aware of Robinhood’s actions, they are not barred from recovery.
It is well-established precedent that lawful, fully disclosed conduct is actionable if
done with manipulative intent. E.g., Set Capital, supra, (“scienter is the only factor that
distinguishes legitimate trading from improper manipulation”); Sharette, 127 F. Supp. 3d
at 82; cf. Cohen, supra, 722 F. Supp. 2d at 424 (MTD at 17) (naked short selling, alone, is
not manipulative).14 In SEC v. Masri, 523 F. Supp. 2d 361 (S.D.N.Y. 2007), after a lengthy
analysis of then-existing case law, the court held that manipulative intent alone could
transform otherwise legitimate activities into impermissible market manipulation. Id. at
366-71. Rejecting the GFL requirement (cited in Sec. III.B.1.a, above) that other
fraudulent conduct or affirmative false signaling must also be alleged, the court found
that “[s]uch a requirement would unnecessarily and improperly place conduct that
intentionally distorts prices outside the scope of Section 10(b)”. Id. at 372.
Set Capital, LLC., supra, exemplifies the rule that full disclosure will not shield

13 Robinhood cites in support two cases in which courts declined to convert
mismanagement claims into manipulation claims. MTD at 16-17. Kraft v. Third Coast
Midstream, 19-CV-9398, 2021 WL 860987, at *23 (S.D.N.Y. Mar. 8, 2021) (“[T]he nub of
their claim is that the price signal was accurate, but just not what it should have been had
AMID made other decisions.”); Brady v. Top Ships, Inc., 17-cv-4987, 2019 WL 3553999,
at *7 (E.D.N.Y. 2019), aff’d. sub nom Onel v. Tops Ships, Inc., 806 Fed. App’x. 64 (2020)
(where agreements were disclosed and stocks splits were approved by shareholders,
failure of a last-ditch financing strategy, alone, did not state a claim).
14 Trane Co. v. O’Connor Secs., 561 F. Supp. 301 (S.D.N.Y. 1983) (MTD at 17) is inapposite.
O’Connor’s purchase of a 15% stake in Trane, which raised its share price, was not
actionable where O’Connor sought only to profit from a buy back. Id. at 304.
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otherwise lawful activities from judicial scrutiny where manipulative intent is alleged.
Plaintiff had purchased “XIV Notes,” the value of which moved inversely to the VIX Short-
Term Futures Index (“VIX Index”). Not only were various risk disclosures eye-popping,15
but Credit Suisse also warned that, as a hedging strategy, it could purchase VIX futures
contracts that could affect the value of the VIX Index and “may present a conflict” between
the bank’s interests and the interests of investors. Id. at 71-72. After Credit Suisse’s
hedging purchases of VIX futures contracts caused a liquidity squeeze driving up the VIX
Index, the value of the XIV Notes plummeted and plaintiffs filed suit.
Credit Suisse asserted its extensive risk disclosures, including its express right to
trade against the interests of its customers, precluded liability. The court rejected the
defense because Credit Suisse knew that when it engaged in hedging activities in the past,
the value of XIV Notes had declined: “[I]t is no defense that Credit Suisse’s transactions
were visible to the market and reflected otherwise legal activity. Open-market
transactions that are not inherently manipulative may constitute manipulative activity
when accompanied by manipulative intent.” Id. at 77.
Regardless of whether purchase prohibitions and restrictions may be permitted
under its customer contracts, the fact that Robinhood publicly imposed them does not
immunize Robinhood from liability where, as here, it acted with manipulative intent.16

15 Because XIV Notes are “designed as short-term trading vehicles for investors managing
their portfolios on a daily basis,” “[t]he long term expected value of your ETNs is zero.”
“If you hold your ETNs as a long term investment, it is likely that you will lose all or a
substantial portion of your investment.” 996 F.3d at 72.
16 Robinhood contends that an SEC bulletin “reiterated…that brokers have the authority
to restrict trading during periods of volatility and that brokers may reserve that right in
their customer agreements” MTD at 17 & n.15. Not quite. The SEC stated, in relevant part:
The national securities exchanges and FINRA have rules designed to address market
volatility in stocks listed on a national securities exchange. The “Limit up-Limit Down”
rules are designed to prevent trades in these stocks from occurring outside a specified
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2.
To save its business, Robinhood intentionally altered the
natural forces of supply and demand for the Affected
Stocks to reduce its required NSCC deposit
Under the Private Securities Litigation Reform Act, a complaint must “state with
particularity facts giving rise to a strong inference that the defendant acted with the
required state of mind.”15 U.S.C. §78u-4(b)(2)(A). To determine whether scienter is
sufficiently alleged for a Rule 10b-5 violation, “[a] complaint will survive … only if a
reasonable person would deem the inference of scienter cogent and at least as compelling
as any opposing inference one could draw from the facts alleged.” Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 324 (2007).
Robinhood admits the most cogent explanation of events is that it “put in place its
purchasing restrictions[] in response to the volatility flowing through its platform and the
resulting collateral deposit requirements imposed by the NSCC.” MTD at 26. Candor does
not absolve Robinhood of liability; rather, it proves it. Robinhood has paid an astonishing
$135 million in fines in seven years of operation due to the improper ways it operated its
platform and dealt with its customers. ¶¶32-34, 35 n.13, 38 n.17. No doubt Robinhood
had business reasons for engaging in its prior misconduct. While staving off liquidation

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 a
stock’s price moves outside these price bands for more than 15 seconds, trading in
the stock will be paused for five minutes …
Also, broker-dealers may reserve the ability to reject or limit customer
transactions. This may be done for legal, compliance, or risk management reasons,
and is typically discussed in the customer account agreement. In certain
circumstances, broker-dealers may determine not to accept orders where a
transaction presents certain associated compliance or legal risks. (Emphasis added.)
Contractual rights aside, the SEC did not endorse Robinhood acting as its own stock
market – basing its determination of “market volatility,” in part, on its gross
undercapitalization – and then ignoring the Limit up-Limit Down Plan and instead
setting its own rules for the Affected Stocks for a week. ¶¶104-106.
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explains Robinhood’s conduct here, doing so by manipulating the natural forces of supply
and demand – driving down the prices of the Affected Stocks to enable Robinhood to meet
deposit requirements – violates the securities laws.
a.
Robinhood knew or was severely reckless in not
knowing that its actions would distort the natural
forces of supply and demand
In this Circuit, “scienter consists of intent to defraud or severe recklessness on the
part of the defendant.” FindWhat Inv. Grp. v. FindWhat.com, 658 F.3d 1282, 1299 (11th
Cir. 2011) (internal citations omitted). With one of 25 shares on all U.S. exchanges in
January 2021 trading on Robinhood’s platform (¶5), and 2.6 million active users on
January 27 (¶47), Plaintiffs allege in detail that Robinhood knew or was severely reckless
in not knowing that its actions would preclude the “natural forces of supply and demand”
from setting the true prices for the Affected Stocks.
Robinhood knew that millions of its customers’ ardent interest in purchasing the
Affected Stocks was the reason for its predicament. ¶99. (“In a matter of days, our
clearinghouse-mandated deposit requirements related to stocks increased ten-fold …
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.”) Unlike its
well-established competitors which did not resort to the extreme measures taken by
Robinhood (¶¶4, 93), on January 28, Robinhood was a private company that, after many
rounds of financing, had raised significantly less than the $3.4 billion it needed to procure
in the next 96 hours to keep its doors open. ¶9. Robinhood was faced with a choice: reduce
risk or raise capital. Inexcusably failing to have properly funded operations before
receiving the NSCC’s $3 billion deposit demand, on the morning of January 28,
Robinhood told the NSCC that it would temporarily prohibit purchases of eight of the
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Affected Stocks. ¶¶59-60.
Robinhood expected negative customer and regulatory reaction to this damaging
decision and started to brace for it. ¶102 n.60 (“we’re going to get crucified…for pco’ing”,
“I think the blowback from this is going to be exponentially worse as time goes on…”
“Need to inform FINRA of expectations around plan for pco symbols & expected increase
in complaint impact”). Yet when Barstool Sports blogger Dave Portnoy asked why
Robinhood had roiled the markets, CEO Tenev feigned ignorance, indicating Robinhood
followed “standard procedure”:
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
[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: 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]

¶103. It is not plausible that someone who created programs to improve trade speeds by
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nanoseconds, ¶30, knows less about the effect of a demand freeze than a sports blogger.17
“Severe recklessness” connotes conduct that “represents an extreme departure
from the standards of ordinary care to the extent that the danger was either known to the
defendant or so obvious that the defendant must have been aware of it.” South Cherry
Street, LLC v. Hennessee Group LLC, 573 F.3d 98, 109 (2d Cir. 2009) (citations and
emphasis omitted). MTD at 23. Here, scienter is also demonstrated by the stark difference
between Robinhood’s actions and the industry standard for addressing extreme volatility
in a stock – imposing a 5-minute pause on all trading. ¶¶104-105.18 Acting in its own self-
interest, Robinhood substituted the industry’s fine-tuned volatility-tamping procedure
with a “blunt hammer” – barring purchases for an entire session. ¶97 (quoting CEO
Tenev). Robinhood continued to impose some form of restrictions for five more entire
trading sessions. ¶121. Under South Cherry, the danger to the markets for the Affected
Stocks posed by its extreme departure from the LULD Plan was so obvious, it must have
been known to Robinhood.
b.
Robinhood’s financial desperation is evidence of
scienter
Although this Court has held that, “without more,” motives generally applicable to
all corporations and executives are insufficient to establish scienter,19 it is well established

17 Tenev’s statement to Elon Musk on January 31 about Robinhood allowing sales of the
Affected Stocks because “People get really pissed off if they’re holding stock and they want
to sell it and they can’t” (¶101), was a misleading statement, made with scienter, to deflect
from Robinhood’s manipulative act to depress the prices of the Affected Stocks. See
Conway, supra. Robinhood provides no evidence (other than its own statements) to show
that customers were clamoring to sell the Affected Stocks into a market where a portion
of the demand was shut off, distorting the natural forces of supply and demand. See MTD
at 33, 39.
18 Even though there were 19 such pauses with respect to GME on January 28, shares still
traded for more than 75% of the session. ¶106.
19 E.g., Stevens v. GlobeTel Comm’ns. Corp., No. 06-21071-CIV, 2007 WL 9701197, at *13
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that a company’s dire financial condition provides evidence of scienter.20
CEO Tenev not only admitted that liquidation was imminent and Robinhood
sought to save itself, but also the context in which Robinhood acted underscores the
company’s precarious position: Having been informed on the evening of January 27 of
across-the-board cuts to its largest source of revenue, PFOF from Citadel, Robinhood was
even more worried about its undercapitalization. ¶¶49-52.
On February 23, Portnoy objected to CEO Tenev’s vehement claim on CNBC on the
night of January 28 that Robinhood did not have a liquidity problem – something
admitted internally by Robinhood Markets COO Gretchen Howard that very morning
(¶59) – because it acted “proactively.” ¶79. Portnoy forced CEO Tenev to admit this was
untrue: because Robinhood did not have a sufficient capital cushion, it had been in danger
of liquidation when it manipulated demand for the Affected Stocks:
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.

(S.D. Fla. Apr. 4, 2007); Underwood v. Lampert, No. 02-21154-CIV, 2004 WL7332754,
at *13 (S.D. Fla. Aug. 30, 2004).
20 See, e.g., Skiadas v. Acer Therapeutics Inc., 1:19-cv-6137, 2020 WL 3268495, at *11
(S.D.N.Y. June 16, 2020), recon. denied, 2020 WL 4208442 (S.D.N.Y. July 21, 2020)
(“allegations of motive adequate where the company’s needed to fundraise to survive”);
Zwick Partners, LP v. Quorum Health Corp., 2018 WL 2933406, at *10 (M.D. Tenn. Apr.
19, 2018) (need to secure $1.2 billion in financing provided a motive to delay impairment
charge in violation of GAAP); Flynn v. Sientra, Inc., No. CIV 15-07548, 2016 WL
3360676, at *15 (C.D. Cal. Jun. 9, 2016) (defendants allegedly concealed a plant’s
contamination to “raise enough money in the SPO to keep Sientra afloat and prevent a
default on its loan with Oxford”); Nguyen v. Radient Pharms. Corp., 2011 WL 13141630,
at *6 (C.D. Cal. Oct. 26, 2011); In re Portal Software, Inc. Secs. Litig., No. C-03-5138,
2005 WL 1910923, at *12 (N.D. Cal. Aug. 10, 2005) (“Portal’s finances were such that the
$60 million was absolutely necessary to keep Portal a ‘going concern.’”).
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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 added.)

¶80(d)(i)&(ii).
Additionally, CEO Tenev freely admitted that Robinhood barred purchases of the
Affected Stocks to save itself. ¶78 (told CNBC it was to “protect the firm”); ¶15 (told
Portnoy: “If Robinhood ceases to exist,” greater harm would ensue. “Protecting the firm
and protecting the system, ultimately, that was the best thing for customers.”). CEO Tenev
went on national television and wrote a column for CNBC on January 27, attracting as
many as 120,000 new customers that day, at a time the company was worried about the
amount of risk in its portfolio and was already spectacularly undercapitalized for the
meme stock trading its customers so desired. Having put itself in an undercapitalized
position that industry risk experts could not fathom (see n. 6, supra), Robinhood cannot
suddenly ask the Court to forgive it for violating the securities laws to save the firm and
its customers. While it may be true that liquidation would have been a worse result, that
fact does not immunize Robinhood from liability. 21

21 In its ruling on the motion to dismiss the state law claims alleged in the Robinhood
Tranche Amended Consolidated Class Action Complaint (Dkt. 453), the Court discussed
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c.
Mischaracterizing Robinhood’s actions as “standard
operations” provides additional evidence of intent
Robinhood’s January 28 restrictions on purchases of the Affected Stocks were not
only unheard of, but they were far more extreme than any other brokers: E*Trade enacted
purchase bans on AMC and GME only, for a short period of time; Apex asked its
introducing brokers to shut off the buy button for AMC, GME and KOSS for 3 ½ hours;
other retail brokers raised margin requirements. ¶93(a)-(d). Therefore, CEO Tenev’s
repeated efforts to deflect questions about Robinhood’s extreme restrictions by pointing
to other brokers’ restrictions or describing its actions as “standard procedure” (¶¶92, 100,
103) are evidence of Robinhood’s intent to deflect attention from its manipulation, as is
Robinhood’s lashing out at the two-day settlement period (despite DTCC CEO Michael
Bodson’s testimony that real-time settlement would endanger market liquidity). ¶¶114-
116. See SEC v. Conaway, 698 F. Supp. 2d 771, 888 (E.D. Mich. 2010) (misleading
statements made to deflect attention are evidence of scienter).22

Robinhood ignores these well-pled scienter allegations and instead tries to knock
down a few straw men. Two arguments focus on Robinhood’s IPO; both are red herrings.
MTD at 3, 24-25. The first is backward-looking, claiming that the “success” of the July

plaintiffs’ allegations that Robinhood fueled trading while not sufficiently capitalized “to
protect against the known risks associated with concentrated positions in highly volatile
[securities]” Order at 56 n.21 (quoting from complaint). Although the Court did not find
the state law claims alleged therein suitable for redressing the materialization of the risk
arising from Robinhood’s severe undercapitalization, the federal securities laws can and
do protect investors who are injured when stocks are manipulated so that an irresponsible
actor such as Robinhood can climb out of its financial hole.
22 Robinhood quibbles with whether the statements are false or made with scienter
because CEO Tenev did not say Robinhood’s restrictions were exactly the same as other
brokers and, in any event, all restrictions were public and no one could have been misled.
MTD at 32-33; 38-39. Plaintiffs’ allegations show intent to manipulate. Whether or not
anyone was taken in is not relevant, as it is not an element of the claim. See n. 9.
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IPO had nothing to do with the prices of the Affected Stocks six months earlier. But, as
CEO Tenev explained, “if you can’t meet your capital requirements, or your deposit
requirements, then you’re essentially dead.” ¶80(d)(ii). A dead company does not conduct
an IPO. Moreover, during a February 12 podcast, CEO Tenev admitted to having the brass
ring as motivation during the Class period, sharing advice received from an early investor
in Robinhood: “[N]avigating a crisis successfully unlocks the next level of value creation
for the company … I’ve had that in mind the entire time.” ¶96.
Robinhood next characterizes the goal of going public as too general a motive.
MTD at 25. In addition to the other facts alleged, the desire to complete the IPO already
being planned with Goldman Sachs (¶39), supports a finding of scienter. In re Hamilton
Bankcorp, Inc. Secs. Litig., 194 F. Supp. 2d 1353, 1358 (S.D. Fla. 2002).

Robinhood’s weakest argument is that it had no financial reason to manipulate
the prices of the Affected Stocks because it did not trade them. MTD at 24. That argument
was squarely rejected in City of Providence v. BATS Global Markets, Inc., 878 F.3d 36,
49-50 (2d Cir. 2017), where a manipulation claim was stated against national markets
that did not themselves trade because they sold services to high-frequency traders
(“HFTs”) that allowed HFTs to gain pricing advantages over plaintiffs. See also, Sharette,
supra, 127 F. Supp. 3d 98-101 (underwriter that did not itself trade created a financing
structure for its corporate client that enabled hedge funds to profit). The further claim
that “Robinhood did not ‘st[and] to gain anything from artificially driving [down] the
price,’” of the Affected Stocks (MTD at 24), ignores CEO Tenev’s admission that
Robinhood did not have “headroom” to continue to allow its customers to take long
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positions in the Affected Stocks at the astronomical highs they were reaching each day.23

Plaintiffs having adequately pled both manipulative acts and scienter, Robinhood’s
challenge to their Rule 10b-5(a)&(c) manipulation claim fails.
C.
Robinhood Violated §9(a) of the Exchange Act
Sections 9(a)(1)-(6) prohibit manipulation of securities prices by a variety of
actors, using a variety of means. Section 9(f) extends liability for §9(a) violations to “[a]ny
person who willfully participates in any [such] act or transaction.”24 The two subsections
of the statute that apply to Robinhood’s misconduct are §9(a)(2) and (4). Specifically,
Robinhood’s intentional actions to depress prices of the Affected Stocks and its admitted
materially misleading statements – omitting that its purchase prohibitions stemmed from
an inability to meet a specific NSCC deposit demand and a flat denial of its liquidity
problem – create liability under §9(a)(2) and (4), respectively.
1.
Plaintiffs’ state a claim pursuant to §9(a)(2)
The elements of a §9(a)(2) claim are: (1) a series of transactions in a security
creating actual or apparent trading in that security or raising or depressing the price of
that security, (2) carried out with scienter (3) for the purpose of inducing the security’s
sale or purchase by others, (4) was relied on by the plaintiff (5) and affected plaintiff's
purchase or selling price. Chemetron I, supra, 682 F.2d at 1164. Robinhood only contests

23 Proof that Robinhood acted to help Citadel – information in Robinhood’s possession
pending discovery – is not an element of Plaintiffs manipulation claims. MTD at 25-26.
It is enough to plead that Robinhood manipulated stock prices to help itself. ¶¶71-72.
24 Cases addressing §9(f)’s “willful participation” standard have not set too a high pleading
burden. SEC v. Resch-Cassin & Co., Inc., 362 F. Supp. 964 (S.D.N.Y. 1973), a case
Robinhood cites twice, held that willful participation was pled where a defendant had a
duty to investigate the reason for postponements of an IPO closing and failed to do so. In
Rooney Pace, Inc. v. Reid, 605 F. Supp. 158 (S.D.N.Y. 1985), where defendant in an
alleged larger scheme placed a single trade for which he only intended to pay if the share
price rose, plaintiff adequately alleged “willful” participation. Id. at 162-63.
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the first three elements. MTD 20-21, 23-26. The complaint pleads a claim.25
a.
Robinhood engaged in a series of transactions that
depressed the price of the Affected Stocks
It is the “central purpose of section 9(a) … to keep an open and free market where
the natural forces of supply and demand determine a security’s price.” Baum, 648 F. Supp
at 305. Robinhood distorted supply and demand by prematurely closing out in-the-
money options, involuntarily canceling submitted purchase orders, and liquidating
shares of the Affected Stocks held in margin accounts. ¶¶52-53, 62, 125. In so doing,
Robinhood affected a series of transactions that depressed the prices of the Affected
Stocks. See Lek, 276 F. Supp. 3d at 62.26 As stated above, Robinhood’s assertion that it
did not trade in its own account fails under City of Providence and Sharette.
The complaint alleges that Robinhood was able to interfere with natural market
forces through these transactions because it was the dominant retail brokerage – and
Robinhood knew it. On the morning of January 28, Robinhood Financial’s President and
COO, David Dusseault, was confident they would “navigate through this nscc issue”
because Robinhood was “to [sic] big for them to actually shut us down”. ¶61. Dusseault
was correct. Bloomberg found that transactions on the Robinhood platform accounted for
4% of all U.S. trading volume in January 2021. ¶95. Because Robinhood’s market share
vastly exceeded all retail competitors – boasting 15 million traders, and, even more

25 With respect to the fourth element, Plaintiffs allege reliance based upon the fraud-on-
the-market presumption and Affiliated Ute, supra. See n. 11. With respect to the fifth
element, Lead Plaintiff and the Named Plaintiffs, as set forth in their certifications, all
sold shares of the Affected Stocks specified therein while Robinhood’s restrictions on
those stocks were in place, depressing the share values. ¶22 and Exhibit A.
26 Robinhood’s citation of Baum (MTD at 20) is inapposite. The plaintiffs in Baum failed
to meet the “in connection with” requirement because the broker did not carry out their
repeated requests to sell their shares. 648 F. Supp. at 1525-26.
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important, more daily active traders, 2.7 million, than all competitors combined (¶¶5, 7
& n.3, 39, 47, 94, 119) – Robinhood’s distortion of both supply and demand caused prices
of the Affected Stocks to sharply decline. ¶¶13 and 76.27
Indeed, Robinhood’s singular power to move markets in either direction by
imposing or loosening restrictions was acknowledged by CNBC and the Wall Street
Journal. ¶¶83, 108, 113 (up); ¶87 (at p.45) (both up and down),28 and is evidenced in the
price movements for the Affected Stocks on January 29, a day during which only
Robinhood imposed any share purchase restrictions. ¶¶4, 93. Robinhood had lifted its
total bans but ratcheted up purchase caps twice during the afternoon, causing prices to
fall each time. ¶89 (and charts).29
Robinhood’s oversized footprint and industry-leading position was the very reason
that investors quickly shored up its capital position, with $3.4 billion pouring in over the
course of 96 hours as Robinhood’s notoriety shone a spotlight on its power over markets.

27 Robinhood argues that a failure to include all 51 stocks upon which Robinhood placed
restrictions during the Class Period “cast[s] doubt on a fundamental premise of Plaintiffs’
‘market manipulation’ theory, i.e., that Robinhood’s PCO caused the price decline in the
nine Affected Stocks.” MTD at 9-10. The fact that Robinhood might not have been able
to distort the market for all 51 stocks is not dispositive: taking away its customers’ ability
to buy GameStop had a more pronounced effect on price than doing the same for
American Airlines. Robinhood’s denial that its purchase restrictions affected the price of
the Affected Stocks is surprising in light of CEO Tenev’s admission that the PCO was
designed to rein in the long positions – i.e., control the upside of the Affected stock prices
– that were driving up Robinhood’s capital requirements. ¶103.
28 See, e.g., ¶87 (1/29 CNBC: “[GME], which closed up 67%, was off its highs of the session
as the new more severe limits were implemented.… Clients without existing shares can
only buy one share … in AMC[ ], which is down from an earlier 115 shares. Shares of AMC
[ ] closed up 53% but also well off their highs of the day”); ¶108 (2/1 Wall Street Journal
article noted that Robinhood had relaxed restrictions in the overnight hours and, by 6:00
a.m., “[t]welve of the 13 stocks that Robinhood Markets had restricting trading in last
week jumped premarket.”).
29 The Amended and Consolidated Class Action Complaint-Antitrust Tranche (Dkt. 451)
(“AT Complaint”), at ¶¶325-336, cites additional evidence of Robinhood’s market power.
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¶¶8, 9, 12(b)&(c), 39, 94, 119 (“[T]he metrics suggest retail trading is exploding and
Robinhood is still the only game in town.”). Consequently, on February 3, it was reported
that Robinhood’s IPO was “full steam ahead.” ¶120.
b.
Robinhood intended to reduce its NSCC requirements
by driving down share prices
Robinhood graphically depicts a steep rise in the price (GME) and the volume of
sales in the Affected Stocks, particularly on January 27, 2021. MTD at 5-7. Because a
significant portion of that purchase volume was attributable to Robinhood customers, on
January 28, Robinhood received a deposit demand that was “nearly 5 times the deposit
requirement from the preceding day.” MTD at 8. The requested deposit to cover its
customers’ long positions in the Affected Stocks “presented significant challenges to
Robinhood’s ability to satisfy its initial collateral deposit requirements to NSCC on
January 28.” MTD at 5. Due to Robinhood’s undercapitalization, according to CEO Tenev,
Robinhood barred purchases but not sales of the Affected Stocks because: “The VaR
formula was in this case driven by the one-sided long position, so it actually wouldn’t help
us …. Restricting selling wouldn’t help the exponential growth in the deposit
requirements.” ¶103. But depressing prices by stifling demand brought Robinhood’s
deposit requirement down. ¶71.
In addition to the scienter arguments set forth in Sec. III.B.2, above, the complaint
pleads additional evidence of willful conduct. First, Robinhood knew its actions would
depress the prices of the Affected Stocks. On January 26, before Robinhood imposed
increased purchase and maintenance margin requirements on GME and AMC,30 30-year

30 According to the article cited by Robinhood (MTD at 16 n.14), the increased margins
for GME and AMC were made public on January 27.
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industry veteran Robinhood Securities President and COO James Swartwout told other
executives in a company chat: “I sold my AMC today. FYI – tomorrow morning we are
moving GME to 100% – so you are aware.” ¶74. A top executive told others at Robinhood
that he sold AMC shares before he imposed higher margin requirements (¶73 n.47). If
Swartwout feared the negative impact of a higher obstacle to purchase, a complete
purchase ban would cause even more harm.
Second, Robinhood’s uniquely manipulative conduct on January 29 was willful.
On the night of January 28, CEO Tenev announced on CNBC and CNN that Robinhood
would reopen trading in the Affected Stocks the next day. ¶¶81-82. In the morning, there
was high premarket trading, bolstered by a CNBC report that Robinhood had secured $1
billion in financing to improve its liquidity to enable purchases. ¶83. Although Robinhood
imposed purchase limits at the market open (¶84), by several hours into the trading day,
prices of the Affected Stocks had significantly rebounded. Suddenly, Robinhood was again
in danger of not being able to meet its NSCC deposit requirements on February 2, after
the two-day NSCC waiver of the excess premium charge expired. ¶¶12(a), 91. Fearful that
the trades from January 29 could cause a liquidity problem if billions of dollars more were
not raised to provide capital headroom, Robinhood imposed tighter purchase limits twice
during afternoon trading. ¶¶84-88.31 On each occasion, trades were suddenly canceled as
customers’ total holdings reached a newly imposed cap or a new restriction caused a
submitted trade to suddenly exceed a new, even lower, purchase limit.32 After the 12:30
and 2:30 restrictions went into effect, the prices of the Affected Stocks declined. ¶89 (and

31 Interactive Brokers’ Thomas Peterffy similarly feared that even limited trading by an
undercapitalized Robinhood on January 29 posed a risk. CC at ¶60 n.39.
32 See, e.g., CC at ¶¶125, 137(c); AT Complaint at ¶254 (screenshots of rejections).
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 36 of 47

charts). Robinhood halted the price rebound to prevent its NSCC deposit requirement
from ballooning out of reach yet again. ¶91.
c.
Robinhood induced Plaintiffs to sell their shares
Robinhood’s goal was to lower the price of the Affected Stocks so that it could meet
its core deposit requirements with the NSCC with respect to its customers’ long positions.
¶71. To do so, Robinhood successfully induced panic selling by Plaintiffs as the price for
the Affected Stocks plummeted. ¶¶69, 125, 140. For this reason, Robinhood’s citation of
Spencer Cos. v. Agency Rent-A-Car, Inc., No. 81-2097-S, 1981 WL 1680 (D. Mass. Sept.
21, 1981) (MTD at 20-21) is particularly inapposite. The court held that it was not
manipulative for Agency to publicly amass a significant stake in Spencer, causing the
latter’s share price to rise, because Spencer was in the best position to decide whether the
corporation’s value justified payment of a buy-back premium. Id. at *4. Here, the opposite
was true: Robinhood’s so-called “temporary”33 restrictions caused prices to both fall and
rise as they were imposed and loosened; Plaintiffs were not only unable to assess the true
value of the Affected Stocks while restrictions were in effect but no one knew when they
would end. As prices fell, worried investors sold to cut their losses, further depressing the
price.
Having satisfied each element, Plaintiffs have stated a claim under §9(a)(2).
2.
Plaintiffs state a claim pursuant to §9(a)(4)
The elements of a §9(a)(4) claim are: (1) misstatement or omission (2) of material
fact (3) made with scienter (4) for the purpose of inducing a sale or purchase of a security

33 Robinhood called the restrictions “temporary” on both January 28 and 31, and in a
February 4 blog post when they were lifted. CC at ¶¶60, 99 and 121. A LULD five-minute
freeze of buying and selling is “temporary”, one-sided caps lasting days are not.
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 37 of 47

(5) on which the plaintiff relied (6) that affected plaintiff’s purchase or selling price.
Chemetron I, 682 F. 2d at 1161-62. Each of these elements is properly alleged.34

Pursuant to the PSLRA, falsity is pled when Plaintiffs “‘specify each statement
alleged to have been misleading, [and] the reason or reasons why the statement is
misleading …’ 15 U.S.C. § 78u-4(b)(1).” The element of scienter is satisfied by pleading an
“aggregation of” “particular facts giving rise to a strong inference that the defendant acted
‘in a severely reckless manner.” Stevens, supra, 2007 WL 9701197 at *9-10.
Robinhood cannot disavow CEO Tenev’s frank admissions about the misleading
nature of its initial statements to customers about why it prohibited purchases of the
Affected Stocks or the fact that he admitted to Robinhood’s liquidity crisis less than a
month after denying it twice on national television.
a.
Robinhood was severely reckless in failing to inform
customers of the NSCC deposit requirement in its
statements on the morning of January 28
Robinhood freely admits that on the morning of January 28, it had insufficient
capital to meet the NSCC’s initial deposit demand and that the NSCC lowered
Robinhood’s required deposit after Robinhood told the NSCC that it would halt purchases
of eight of the Affected Stocks. MTD at 5, 8-9. These facts were first revealed, however,
only after investors, the media, and legislators spent the day excoriating Robinhood for
the detrimental effect of its actions on the prices of the Affected Stocks. ¶¶69-70, 76. In
full damage-control mode – with accusations flying that Robinhood sold out small
investors to Wall Street predators – on the evening of January 28, CEO Tenev took to the

34 The elements of affecting the sales price and inducing the sale are the same as a §9(a)(2)
claim and Plaintiffs incorporate their argument in Secs. III.C.1.a and III.C.1.c herein.
Although Robinhood does not attack the pleading of reliance, it is adequately alleged. See
n. 11, supra.
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airwaves to tell a less scandalous story: Robinhood’s actions stemmed from the receipt of
an NSCC deposit demand that Robinhood could not meet. ¶¶77-79, 82.
On the morning of January 28, however, Robinhood did not want these facts to be
made public. With an IPO in the works, Robinhood did not wish to broadcast that serious
undercapitalization was the reason it took the drastic measure of shutting off the “buy”
button for the popular Affected Stocks (as well as canceling purchase orders, selling
shares bought on margin, and PCOing in-the-money options35). For this reason,
Robinhood’s communications to customers that morning mentioned nothing about its
deposit requirements with the NSCC. The first “market volatility” statement said nothing
about either the decision to PCO eight stocks or the NSCC deposit requirement:
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

35 Robinhood asks the Court to ignore Robinhood Securities President and COO James
Swartwout’s February 8 statement under oath that Robinhood did not close out in-the-
money options on or after January 27, but see ¶¶52-57, because it was made after the Class
Period. MTD at 31 n.20. Where, as here the Court must weigh plausible inferences to
determine whether Robinhood acted with manipulative intent, an apparent misstatement
made just days after an event is relevant to determining scienter.
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¶62. Shortly thereafter, Robinhood’s team issued another statement, announcing that it
would set 13 stocks to PCO. Again, Robinhood referred customers to resources discussing
“market volatility” but did not mention the NSCC deposit requirement:
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.

¶63.

Customers wanted to know why they could not purchase the Affected Stocks.
Robinhood’s website explained conditions under which a “buy” button would be turned
off, but they did not apply to the Affected Stocks. ¶65. Robinhood telling them to read
articles about market volatility rather than admit that that it imposed these trading
restrictions to meet capital requirements was materially misleading. Robinhood may not
have had a duty to disclose its interactions with the NSCC, but once it chose to speak to
customers about prohibiting purchases due to “market volatility,” it had a duty to be
accurate and complete. See In re Barclays Liquidity Cross and High Frequency Trading
Litig., 390 F. Supp. 3d 432, 449 (S.D.N.Y 2019) (by advertising the availability of costly
special services, stock exchanges were obligated to explain how high-frequency traders
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 40 of 47

could purchase and use them to disadvantage other traders).
We know these statements were materially misleading for failing to disclose the
NSCC deposit requirement because CEO Tenev himself admitted the statements were
deficient. ¶64 (“no doubt we could have communicated this a little better to customers”).
When asked why he did not give the NSCC deposit explanation he provided on CNBC from
the outset, CEO Tenev conceded Robinhood erred. On a February 12 podcast, he indicated
it was wrong to have initially sent a form email usually, sent when a “buy” button is turned
off: “[T]here’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.” CC at ¶65.
When Robinhood provided information beyond the automated email, to wit, the
two statements quoted above, statements carefully crafted by a team (¶66), they still
omitted any reference to the NSCC deposit demand. CEO Tenev later admitted that those
communications fell short: “[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 …” Id. at ¶67 n. 44.
CEO Tenev also explained why the messages were materially misleading: in the
absence of full disclosure, it was assumed Robinhood chose a side in the “retail investors
versus hedge funds” battle that had been very publicly playing out in recent weeks. ¶¶40-
41, 43. CEO Tenev indicated that in the information vacuum Robinhood created that
morning, conspiracy theories swirled. Not knowing the truth about Robinhood’s reason
for its actions induced panic selling. Id. at ¶¶68-69.
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Although CEO Tenev carefully framed his admissions using the word “hindsight,”
Robinhood acted with scienter. On the morning of January 28, Robinhood was acutely
aware of the context in which its unexplained actions would be viewed: As the $3 billion
NSCC deposit demand attests, Robinhood traders were prominent in the public David-
versus-Goliath battle; moreover, Robinhood executives privately knew some hedge funds
had been seriously wounded in that battle. ¶50 n.29 (Robinhood employee wrote on
January 27: “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” ). Against this backdrop,
Robinhood’s materially misleading statements, on top of its actions, were the match that
lit the fire of the sell-off. Pursuant to South Cherry, supra, the danger was so obvious that
Robinhood must have been aware of it.
In addition to being severely reckless, Robinhood’s motive for not being truthful
was that it would hurt the company’s image, with an IPO in the works, to admit that it
was so undercapitalized that it had to take an action CEO Tenev knew “would be a bad
outcome for our customers.” Id. at ¶75 (chat from that morning: “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.”). In drafting its statements, the Robinhood team made the
calculated decision to be intentionally vague to save face. However, in light of its
knowledge that the alleged “short squeeze” battle appeared to have turned into all-out war
as prices for the Affected Stocks skyrocketed, Robinhood was severely reckless when it
failed to include the need to meet its NSCC requirement in the “market volatility”
statements accompanying its purchase prohibitions on the morning of January 28.
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b.
Robinhood publicly dissembled about its liquidity
crisis while it privately searched for capital to keep the
doors open
When CEO Tenev appeared on CNBC to say that the NSCC deposit requirement,
not assisting hedge funds, was the reason Robinhood blocked purchases of the Affected
Stocks, CNBC’s Aaron Ross Sorkin commented that CEO Tenev raised “all sorts of new
questions” about whether there is a systemic issue under the company itself. ¶79. CEO
Tenev vehemently denied to host Sorkin and later to Chris Cuomo on CNN that
Robinhood had a liquidity problem ¶¶79 and 82. As explained in Sec. III.B.2.b, months
before Robinhood Markets COO Gretchen Howard’s “major liquidity issue,” email, ¶12(a),
came to light, CEO Tenev had already conceded to Dave Portnoy that Robinhood shut
down purchases because it had no capital “headroom” and would have a liquidity problem
next day if it had not.36
Also as set forth in Sec. III.B.2.c and III.C.2.a, above, the statement was made with
scienter because Robinhood was in the process of planning an IPO and feared how it
would look bad to discuss its liquidity problem on national television. ¶¶80(b); 80(d)(ii)
(CEO Tenev: “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.”)

36 In another portion of the discussion with Dave Portnoy (not quoted in the complaint)
discussing the CNBC interview, Tenev admits he was not clear the night of January 28:
Portnoy: OK, so to me, that is very much a liquidity issue. . . .
Tenev: I think what you’re saying is fair, right, and I’ll take it. I was kind of running
on fumes on Thursday, like trying to raise the 3.4 billion dollars so that we could
unrestrict the stocks . . . I’ll take the feedback that I could have been a little bit more
clear in the short-form interviews.
https://www.youtube.com/watch?v=LqoJApzkaPU, last accessed Nov. 29, 2021.
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 43 of 47

Additionally, Robinhood dissembled because it did not want to lose customers and
wanted to make it appear that this was a short-term problem. In reality, the $1 billion
raised on January 28 was not the $3.4 billion Robinhood ultimately needed to maintain
liquidity. See n. 41. Thus, when CEO Tenev denied having a liquidity problem on the night
of January 28, Robinhood knew it was not out of the woods and could have a liquidity
problem on February 2 should the prices of the Affected Stocks rebound at a time the
NSCC no longer waived the ECP (which was $2.2 billion on January 28). ¶91.37 In fact,
CEO Tenev not having told the truth, when Robinhood permitted purchases of the
Affected Stocks during the first three hours of trading on January 29, ¶84, investors were
lulled into believing the extreme actions of January 28 were an aberration. Thus, the
market was stunned when, around 12:30 and 2:30, after prices rebounded to the point
that it could once again be faced with a NSCC deposit demand it could not pay, Robinhood
imposed successively tighter purchase caps on the Affected Stocks, again depressing their
prices. ¶¶85-89 (and charts).38
Robinhood relies on the Court’s November 17, 2021, Order on the motion to
dismiss the complaint in the Antitrust Tranche (Dkt. 438) to contend that Robinhood’s
liquidity statements were not false because they were consistent with the earlier “market
volatility” statements. MTD at 32. The argument is misplaced because the elements of a

37 The chairman of Interactive Brokers, Thomas Peterffy, believed Robinhood was taking
a dangerous risk by reopening trading before shoring up its capitalization. See ¶60 n. 39.
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-buysof-gamestop-troubling-im-not-comfortable-11611876619, last accessed Jan.
28, 2021)
38 Given the risk to all clearinghouses posed by a Robinhood liquidation, when Apex
discovered that purchasers found a way to avoid Robinhood’s first set of harsh purchase
limits on the afternoon of January 29, it immediately informed Robinhood. ¶90 n.53.
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 44 of 47

securities claim are not the same as an antitrust claim. The issue being addressed in the
cited portion of the Order was whether two statements could be deemed changing
pretextual explanations for Robinhood’s conduct which could be indicative of an intent to
conceal a conspiracy. Order at 45-46 (Dkt. 438).
Here, although the statements are consistent, the question is whether a denial of a
liquidity problem on the evening of January 28 when Robinhood alone knew it still
needed to raise $2.4 billion to have a sufficient capital cushion for the next day’s trades
when the ECP waiver expired on February 2, is a false statement or materially misleading.
Even if, as Robinhood argues, the claim was literally true on the evening of January 28
because its negotiations with the NSCC that morning allowed Robinhood to live another
day, “[t]he disclosure required by the securities laws is measured not by literal truth, but
by the ability of the material to accurately inform rather than mislead…” Schultz v.
Applica Inc., 488 F. Supp. 2d 1219, 1229 n.6 (S.D. Fla. 2007)
Robinhood’s arguments against a finding of scienter are equally unavailing. The
suggestion that there is no reasonable inference of scienter because CEO Tenev repeated
his “no liquidity problem” statement on more than one occasion – thereby giving rise to
an inference that he believed it (MTD at 37-38) – is belied by the two admissions in his
discussion with Dave Portnoy that Robinhood did face a liquidity issue and, specifically,
that Portnoy’s criticism of Tenev’s denial of it to CNBC host Sorkin was “fair”. ¶80(d)(ii)
and n. 36. Similarly, the claim that a desire to conduct an IPO is too general a profit motive
(MTD at 38), fails for the same reasons stated in Sec. III.B.2.c, above, especially because
it is not the sole basis for scienter alleged.
Plaintiffs have alleged Robinhood made materially misleading statements with
scienter both in the morning and the evening of January 28, which statements distorted
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 45 of 47

the markets and affected the price at which Plaintiffs sold their shares of the Affected
Stocks. A claim is stated for market manipulation pursuant to §9(a)(4).
IV.
CONCLUSION
The federal securities laws proscribing market manipulation were enacted to
protect small investors. Grossly undercapitalized and desperate, Robinhood saved its
business and its ability to conduct a public offering of its shares by employing audacious
and cunning tactics at Plaintiffs’ expense. Robinhood claims to be a market disrupter.
Now, however, it asks the Court to fully excuse its extreme action – shutting down or
restricting purchases of as many as 51 stocks during all or part of six trading sessions –
by claiming it was simply following “standard procedure” in the brokerage industry. It
was not. Markets were roiled and billions of dollars lost because Robinhood “had no
respect for the existing guardrails.” Having survived and thrived, Robinhood must
provide redress to those who were injured by its manipulation of stock prices.
For the reasons stated above, and at any oral argument that may be scheduled,
Plaintiffs respectfully request that Robinhood’s motion to dismiss be denied in its entirety
or, in the alternative, that Plaintiffs be granted leave to amend their pleading.
Dated: January 28, 2022

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 Plaintiffs
Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 46 of 47

CERTIFICATE OF SERVICE

I hereby certify that on January 28, 2022, a true and correct copy of the foregoing
document was served by CM/ECF to the parties registered to the Court’s CM/ECF system.

/s/Laurence M. Rosen

Case 1:21-md-02989-CMA Document 454 Entered on FLSD Docket 01/28/2022 Page 47 of 47

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Plaintiffs' Opposition to Defendants Robinhood Markets, Inc., Robinhood Financial LLC and Robinhood Securities, LLC's Motion to Dismiss the Consolidated Class Action Complaint — In re January 2021 Short Squeeze Trading Litigation (Dkt. 454, S.D. Fla.)

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