Defendants Robinhood Markets, Inc., Robinhood Financial LLC and Robinhood Securities, LLC's Memorandum of Points and Authorities in Opposition to Plaintiffs' Motion for Class Certification — In re January 2021 Short Squeeze Trading Litigation (Dkt. 567, S.D. Fla.)
Summary
Defendants Robinhood Markets, Inc., Robinhood Financial LLC and Robinhood Securities, LLC's Memorandum of Points and Authorities in Opposition to Plaintiffs' Motion for Class Certification in In re: January 2021 Short Squeeze Trading Litigation, Case 1:21-md-02989-CMA (Case No. 21-MD-2989-ALTONAGA/DAMIAN, Document 567, 45 pages), in the Southern District of Florida, entered June 7, 2023. Robinhood argues that retail investors drove up the meme stocks in a social media frenzy and that reliance and damages would be individualized, with neither the Basic nor the Affiliated Ute presumption available, precluding certification under Rule 23(b)(3). The memorandum also argues that the Named Plaintiffs fail Rules 23(a)(3) and 23(a)(4) and asks for a hearing joined with any Daubert hearing, over the /s/ signature of Samuel A. Danon of Hunton Andrews Kurth LLP.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Cite this document
“Defendants Robinhood Markets, Inc., Robinhood Financial LLC and Robinhood Securities, LLC's Memorandum of Points and… (Dkt. 567).”
Original at archive.org. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2023-06-07-affiliated-ute-citizens-of-utah-v-united-states/
, SHA-256 bf58bb059f84f434b8433eafb4bdf8071f5a70f5815a03d10da4b2cc215e6dfb.Full text
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 1 of 45
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 21-MD-2989-ALTONAGA/DAMIAN
In re:
JANUARY 2021 SHORT SQUEEZE
TRADING LITIGATION
_____________________________________/
This Document Relates to the Federal Securities Tranche
DEFENDANTS ROBINHOOD MARKETS, INC., ROBINHOOD FINANCIAL LLC AND
ROBINHOOD SECURITIES, LLC’S MEMORANDUM OF POINTS AND
AUTHORITIES IN OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS
CERTIFICATION
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 2 of 45
TABLE OF CONTENTS
TABLE OF AUTHORITIES .......................................................................................................... ii
INTRODUCTION ...........................................................................................................................1
STATEMENT OF FACTS ..............................................................................................................3
I. Robinhood and Retail Trading .............................................................................................3
II. Meme Stocks, Retail Investors Coordinating on Social Media and Short Squeezes ...........3
III. Collateral Requirements and Trading Restrictions Imposed by Robinhood and
Other Retail Brokerages .......................................................................................................6
IV. Named Plaintiffs’ Trading Prior to And During the Proposed Class Period .......................9
A. Named Plaintiffs Were Aware of Co-ordinated Trading on Social Media
and Possible Short Squeezes. ...................................................................................9
B. Named Plaintiffs’ Investment Strategies (or Lack Thereof). ...............................100
C. Named Plaintiffs Were Aware of the Robinhood Restrictions When They
Sold Their Shares. ................................................................................................111
D. Several Named Plaintiffs Profited on Their Trades During the Class
Period. ....................................................................................................................12
LEGAL STANDARD ....................................................................................................................13
ARGUMENT ...............................................................................................................................144
I. Plaintiffs Will Be Required To Prove Reliance on an Individualized Basis,
Precluding Certification Under Rule 23(b)(3). ..................................................................15
A. Plaintiffs Do Not Satisfy the Basic Presumption of Reliance..............................155
B. The “Common Scheme” Exception Does Not Apply. .........................................222
C. The Affiliated Ute Presumption Does Not Apply. ...............................................255
II. Plaintiffs Will Be Forced To Litigate Damages on an Individualized Basis,
Precluding Certification Under Rule 23(b)(3). ................................................................266
III. Because Plaintiffs Lack Standing or Are Atypical and Subject to Unique
Defenses, They Cannot Satisfy Rule 23(a)(3). ..................................................................29
A. A Class Cannot Be Certified with Laine-Beveridge as Lead Plaintiff. .................29
B. Named Plaintiffs Did Not Rely on the Integrity of the Market. ..........................311
C. Named Plaintiffs Lack Standing To Represent Class Members Who
Traded in BBBY, KOSS, TR or TRVG. ..............................................................333
IV. Plaintiffs Cannot Satisfy Rule 23(a)(4) Because They Will Not Adequately
Prosecute the Action and Substantial Conflicts of Interest Exist. ...................................344
CONCLUSION ............................................................................................................................355
REQUEST FOR HEARING ........................................................................................................366
i
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 3 of 45
TABLE OF AUTHORITIES
Page(s)
Cases
Affiliated Ute Citizens of Utah v. United States,
406 U.S. 128 (1972) ......................................................................................................... passim
Amchem Prods., Inc. v. Windsor,
521 U.S. 591 (1997) .................................................................................................................13
Amgen Inc. v. Conn. Ret. Plans & Tr. Funds,
568 U.S. 455 (2013) .................................................................................................................16
Applestein v. Medivation, Inc.,
No. C 10–00998 MHP, 2010 WL 3749406 (N.D. Cal. Sept. 20, 2010) ..................................33
Appleyard v. Wallace,
754 F.2d 955 (11th Cir. 1985) .................................................................................................30
ATSI Communications, Inc. v. Shaar Fund, Ltd.,
493 F.3d 87 (2d Cir. 2007).................................................................................................15, 16
Bang v. Acura Pharm. Inc.,
No. 10 C 5757, 2011 WL 91099 (N.D. Ill. Jan. 11, 2011) ......................................................32
Basic Inc. v. Levinson,
485 U.S. 224 (1988) ......................................................................................................... passim
Baum v. Phillips, Appel & Walden, Inc.,
648 F. Supp. 1518 (S.D.N.Y. 1986).........................................................................................15
Bruhl v. Price Waterhousecoopers Int’l,
257 F.R.D. 684 (S.D. Fla. 2008) ..............................................................................................23
Bussey v. Macon Cnty. Greyhound Park, Inc.,
562 F. App’x 782 (11th Cir. 2014) ..........................................................................................13
Cardenas v. Toyota Motor Corp.,
No. 18-CV-22798, 2021 WL 6926418 (S.D. Fla. Aug. 12, 2021) ..........................................28
Cavalier Carpets, Inc. v. Caylor,
746 F.2d 749 (11th Cir. 1984) .................................................................................................25
City of Providence v. BATS Global Mkts., Inc.,
878 F.3d 36 (2d Cir. 2017).......................................................................................................25
ii
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 4 of 45
City Pension Fund for Firefighters & Police Officers in the City of Miami Beach v.
Aracruz Cellulose S.A.,
No. 08-cv-23317, 2009 WL 10664427 (S.D. Fla. Aug. 7, 2009) ............................................30
Comcast Corporation v. Behrend,
569 U.S. 27 (2013) ........................................................................................................... passim
Cuban Am. Bar Ass’n, Inc. v. Christopher,
43 F.3d 1412 (11th Cir. 1995) .................................................................................................29
Desai v. Deutsche Bank Securities Ltd.,
573 F.3d 931 (9th Cir. 2009) ........................................................................................... passim
Dodona I, LLC v. Goldman, Sachs & Co.,
847 F. Supp. 2d 624 (S.D.N.Y. 2012)......................................................................................16
Erica P. John Fund, Inc. v. Halliburton Co.,
563 U.S. 804 (2011) (Halliburton I) ........................................................................................15
Fezzani v. Bear, Stearns & Co.,
716 F.3d 18 (2d Cir. 2013) (Fezzani I) ..............................................................................17, 18
Fezzani v. Bear, Stearns & Co.,
777 F.3d 566 (2d Cir. 2015) (Fezzani II) ...........................................................................17, 18
FindWhat Inv. Grp. v. FindWhat.com,
658 F.3d 1282 (11th Cir. 2011) ...................................................................................16, 17, 21
Gen. Tel. Co. of Sw. v. Falcon,
457 U.S. 147 (1982) .................................................................................................................13
Grayson v. K Mart Corp.,
79 F.3d 1086 (11th Cir. 1996) .................................................................................................36
Halliburton Co. v. Erica P. John Fund, Inc.,
573 U.S. 258 (2014) (Halliburton II).................................................................................18, 22
Hawaii Structural Ironworkers Pension Tr. Fund, Inc. v. AMC Ent. Holdings, Inc.,
338 F.R.D. 205 (S.D.N.Y. 2021) .............................................................................................19
Helfand v. Cenco,
80 F.R.D. 1 (N.D. Ill. 1977) .....................................................................................................34
Hudson v. Delta Air Lines, Inc.,
90 F.3d 451 (11th Cir. 1996) ...................................................................................................36
In re Allergan PLC Sec. Litig.,
No. 18-Civ-12089-CMG-WG, 2021 WL 4077942 (S.D.N.Y. Sept. 8, 2021) .........................30
iii
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 5 of 45
In re Am. Int’l Grp., Inc. Sec. Litig.,
265 F.R.D. 157 (S.D.N.Y. 2010) .............................................................................................21
In re Barclays Liquidity Cross & High Frequency Trading Litig.,
390 F. Supp. 3d 432 (S.D.N.Y. 2019)................................................................................25, 26
In re Comdisco Sec. Litig.,
150 F. Supp. 2d 943 (N.D. Ill. 2001) .......................................................................................31
In re Domestic Air Transp. Antitrust Litig.,
137 F.R.D. 677 (N.D. Ga. 1991)..............................................................................................36
In re Dreyfus Aggressive Growth Mut. Fund Litig.,
No. 98-cv-4318, 2000 WL 1357509 (S.D.N.Y Sept. 20, 2000) ..............................................34
In re GenesisIntermedia, Inc. Sec. Litig.,
No. CV 01-9024-SVW VBKX, 2007 WL 1953475 (C.D. Cal. June 28, 2007), aff’d
sub nom. Desai v. Deutsche Bank Securities Ltd., 573 F.3d 931 (9th Cir. 2009)....................17
In re GenesisIntermedia, Inc. Sec. Litig.,
232 F.R.D. 321 (D. Minn. 2005)........................................................................................24, 31
In re Merrill Lynch Auction Rate Sec. Litig.,
704 F. Supp. 2d 378 (S.D.N.Y. 2010)................................................................................17, 22
In re Photochromic Lens Antitrust Litig.,
No. 8:10-cv-00984-T-27EAJ, 2014 WL 1338605 (M.D. Fla. Apr. 3, 2014) ..........................35
In re Safeguard Scientifics,
216 F.R.D. 577 (E.D. Pa. 2003) .........................................................................................32, 33
Katz v. Comdisco, Inc.,
117 F.R.D. 403 (N.D. Ill. 1987) ...............................................................................................31
Kennedy v. Tallant,
710 F.2d 711 ............................................................................................................................23
Kirkpatrick v. J.C. Bradford & Co.,
827 F.2d 718 (11th Cir. 1987) ......................................................................................... passim
Krogman v. Sterritt,
202 F.R.D. 467 (N.D. Tex. 2001) ............................................................................................36
Krukever v. TD Ameritrade, Futures & Forex LLC,
328 F.R.D. 649 (S.D. Fla. 2018) ........................................................................................27, 34
Landry v. Price Waterhouse Chartered Accountants,
123 F.R.D. 474 (S.D.N.Y. 1989) .......................................................................................32, 33
iv
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 6 of 45
Local 703, I.B. of T. Grocery & Food Emps. Welfare Fund v. Regions Fin. Corp.,
762 F.3d 1248 (11th Cir. 2014) .........................................................................................18, 31
Luczak v. Nat’l Beverage Corp.,
548 F. Supp. 3d 1256 (S.D. Fla. 2021) ........................................................................32, 33, 34
Montgomery v. New Piper Aircraft, Inc.,
209 F.R.D. 221, 226-27 (S.D. Fla. 2002).................................................................................35
O’Shea v. Littleton,
414 U.S. 488 (1974) .................................................................................................................29
Pearlstein v. BlackBerry Ltd.,
No. 13 Civ. 7060 (CM), 2021 WL 253453 (S.D.N.Y. Jan. 26, 2021) .....................................19
Rabin v. Nasdaq OMX PHLX LLC,
182 F. Supp. 3d 220 (E.D. Pa. 2016) aff’d, 712 F. App’x 188 (3d Cir. 2017) ........................26
Rabin v. Nasdaq OMX PHLX LLC,
712 F. App’x 188 (3d Cir. 2017) .......................................................................................25, 26
Randolph v. J.M. Smucker Co.,
303 F.R.D. 679 (S.D. Fla. 2014) ..............................................................................................27
Spicer v. Chicago Bd. of Options Exch., Inc.,
1990 WL 16983 (N.D. Ill. Jan. 31, 1990) ..........................................................................25, 26
Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc.,
No. 05 Civ. 1898, 2005 WL 2148919 (S.D.N.Y. Sept. 6, 2005) .............................................33
Tyson Foods, Inc. v. Bouaphakeo,
577 U.S. 442 (2016) .................................................................................................................13
Ulysse v. Waste Mgmt. Inc.,
No. 11-CV-80723, 2013 WL 11327137 (S.D. Fla. Sept. 13, 2013) ........................................28
Underwood v. Lampert,
No. 02-cv-21154, 2005 WL 8155010 (S.D. Fla. Sept. 9, 2005) .............................................32
Valley Drug Co. v. Geneva Pharmaceuticals,
350 F.3d 1181 (11th Cir. 2003) ...............................................................................................14
Wal-Mart Stores, Inc. v. Dukes,
564 U.S. 338 (2011) .................................................................................................................13
Welling v. Alexy,
155 F.R.D. 654 (N.D. Cal. 1994) .............................................................................................35
v
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 7 of 45
Statutes & Rules
Fed. R. Civ. P. 23 ................................................................................................................... passim
Securities Exchange Act Section 9(a)(2), 15 U.S.C. § 78i(a)(2) .............................................14, 15
Securities Exchange Act Section 10(b), 15 U.S.C. § 78j(b) ....................................................14, 15
SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 .......................................................................................17
Other Authorities
Caitlin McCabe, Robinhood, Other Brokerages Restrict Trading on GameStop, AMC,
WALL ST. J. (Jan. 28, 2021, 9:05 P.M.) .....................................................................................8
vi
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 8 of 45
INTRODUCTION
Plaintiffs accuse Robinhood of manipulating the markets for certain “meme stocks.” In
reality, it was retail investors like the Named Plaintiffs who drove up the price of the specified
stocks in a social media frenzy that created a bubble doomed to burst. During that frenzy, the
prices for those stocks were completely untethered from the actual value of the underlying
companies. This inescapable fact makes this case unsuitable for resolution as a class action.
Unlike in a typical securities fraud case for exchange-traded stocks, in which a defendant makes
a common misrepresentation and the court can presume class members relied on it, Plaintiffs
here cannot show that members of the putative class, including investors who did not trade on
(and may never have heard of) Robinhood, relied on any statement Robinhood made regarding
the reasons for its trading restrictions in deciding whether to hold or sell their shares of other
companies’ stock. Nor can Plaintiffs establish that they relied on the integrity of the market.
Instead, the evidence—including the sworn testimony of numerous Named Plaintiffs—
establishes that many of the putative class members traded with full knowledge of black swan
market events, attempting to take advantage of real or perceived short squeezes driving these
stocks to their breathtaking prices. Predictably, the bubble burst and the stocks returned to their
true prices. This coincided with Robinhood’s imposition of the purchasing restrictions, which all
but one Named Plaintiff admit they knew about when they sold their shares. As with any bubble,
some people made money and, depending on timing, others lost money. Plaintiffs now seek to
certify a class of individuals who purportedly lost on their trades when the bubble burst. (Dkt.
No. 559 (the “Mot.”).) Their motion should be rejected on four independent grounds.
First, Plaintiffs cannot satisfy the predominance requirement of Federal Rule of Civil
Procedure 23(b)(3) because reliance—an element of each of their claims—cannot be presumed
classwide. As a result, each putative class member’s reliance (or lack thereof) will be an
individualized inquiry. That is because the markets for the Affected Stocks were not efficient
during the Class Period (or the immediate run-up to the Class Period), precluding Plaintiffs from
invoking the presumption of reliance set forth in Basic Inc. v. Levinson, 485 U.S. 224 (1988) that
plaintiffs in securities fraud class actions can typically satisfy. In addition to the fact discovery
from Named Plaintiffs and other investors, the accompanying reports of Robinhood’s experts,
Prof. Steven Grenadier and Prof. Daniel Fischel, set out evidence that the markets for the
Affected Stocks were not efficient during this unusual time period and explain why the efficient
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 9 of 45
market theory does not apply. Plaintiffs’ attempts to avoid the Basic requirement to show
efficient markets fail, as neither the “common scheme” doctrine nor the presumption of reliance
under Affiliated Ute v. United States, 406 U.S. 128 (1972), applies. (See Part I.)
Second, Plaintiffs cannot satisfy the predominance requirement of Rule 23(b)(3) for the
separate reason that they cannot establish that their damages are measurable on a classwide basis
using a common methodology that is consistent with their theory of liability, as required under
Comcast Corp. v. Behrend, 569 U.S. 27 (2013). A reliable damages model must account for the
fact that the prices of the Affected Stocks in the pre-Class Period were artificially inflated, and
Plaintiffs have not put forward a reliable methodology to determine the but-for price had
Robinhood never put the purchase restrictions in place. Plaintiffs’ failure to establish that the
markets for the Affected Stocks were efficient on January 27, the day before the Class Period, is
fatal to their damages methodology. (See Part II.)
Third, Named Plaintiffs lack standing to bring certain claims and are subject to unique
defenses that preclude certification under the typicality requirement of Rule 23(a)(4). Discovery
has shown that the proposed lead plaintiff, Blue Laine-Beveridge, is not a class member at all or
at a minimum, he is atypical because he profited on his trades. Without a lead plaintiff, the class
cannot be certified. Moreover, all of the Named Plaintiffs testified that they did not rely on the
integrity of the market and instead engaged in unusual trading practices—such as not conducting
research, trading based on price movements, buying and selling the same security in a single
trading day and investing at the recommendation of social media influencers. These haphazard
trading practices, which are not typical of all traders, give rise to unique defenses. Further, none
of the Named Plaintiffs suffered losses from transactions in four of the Affected Stocks (BBBY,
KOSS, TR and TRVG), so they lack standing to sue regarding those stocks. (See Part III.)
Fourth, the Named Plaintiffs will not adequately prosecute the action as required by Rule
23(a)(4). Named Plaintiffs’ deposition testimony demonstrates that they have failed to take an
active role in overseeing the case and do not even understand the substance of the action. In the
most egregious display of a named plaintiff’s disregard of his obligations, one Named Plaintiff
sat for his entire four-hour deposition while he was driving his car. (See Part IV.)
2
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 10 of 45
STATEMENT OF FACTS
I. ROBINHOOD AND RETAIL TRADING
Robinhood has democratized finance by providing access to financial markets with its
zero-commission trades, no account minimums, and a platform available on a computer or
mobile device. Customer trading on Robinhood is largely self-directed. (Ex. 58, Robinhood
2021 10-K at 6.) When a Robinhood customer initiates a trade, Robinhood Financial—the
introducing broker—decides whether to accept the order. If it does, Robinhood Financial sends
the order to Robinhood Securities, the clearing broker, which routes the order to a market maker
for execution. (Ex. 60, Robinhood Blog Post, “What happened this week” (Jan. 29, 2021).)
After the trade is executed, Robinhood Securities submits it to a clearinghouse for
clearance and settlement. (Id.) The main clearinghouse for equities traded in the U.S. is the
National Securities Clearing Corporation (“NSCC”). (Ex. 20, Grenadier Report ¶ 53.) To
mitigate the risk that market participants will be unable to satisfy their obligations, clearing
brokers, including Robinhood Securities, must post collateral (also referred to as deposit
requirements) with NSCC to cover the risk until the trade settles. These deposit requirements
fluctuate day to day, and depending on NSCC’s calculations, Robinhood may be required to
deposit additional funds to meet its obligations. (Id. ¶¶ 53-54.) In setting deposit requirements,
NSCC considers market volatility generally as well as the volatility in specific securities, and, in
its discretion, may also apply an excess capital premium (“ECP”). (Id. ¶ 54 & n.101.) If a
clearing broker does not meet its deposit requirements, NSCC could liquidate the broker’s entire
portfolio, inclusive of its customers’ positions. (Ex. 63, HFSC Report at 64.)
II. MEME STOCKS, RETAIL INVESTORS COORDINATING ON SOCIAL MEDIA
AND SHORT SQUEEZES
In late January 2021, leading up to the proposed Class Period, retail investors banded
together through online forums to drive a massive short squeeze involving certain stocks
(referred to as “meme stocks”) they perceived to be heavily shorted by hedge funds. (Ex. 18,
Fischel Report ¶ 8; Ex. 20, Grenadier Report ¶¶ 113-114.) 1 While retail investors had various
1
Plaintiffs claim an SEC Staff Report “cast[s] doubt on the short squeeze at the center of
Robinhood’s experts’ narrative” (Mot. at 6), but they ignore that the very paragraph they cite
states: “[t]he price surge in GME [] raises questions of market efficiency that relate to short
selling.” (Dkt No. 559-12 at 30.) Indeed, the report observed that it was “unusually costly to
borrow shares in GME,” and that “constraints on short selling” can contribute to “bubbles where
3
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 11 of 45
motivations for trading, with some seeking to harm hedge funds with short positions, others
seeking to profit from possible squeezes and still others seeking entertainment, this spike in retail
investor trading activity resulted in extreme market volatility and dramatic run-ups of the nine
stocks at issue in this case. (Ex. 18, Fischel Report ¶ 9; Ex. 20, Grenadier Report ¶¶ 114-118.)
One social media forum that retail investors used to gin up enthusiasm for the meme
stocks was the WallStreetBets page on Reddit. Certain high-profile retail investors’ posts on
WallStreetBets and other social media platforms were particularly effective in fueling the fires of
the meme stock movement. Keith Gill, for example, known by his social media usernames
“Roaring Kitty” or “DeepF***ingValue,” posted videos encouraging investment in GME that
were widely cited on WallStreetBets and have over a million views. 2 Gill also posted
screenshots of his meme stock investments, prompting followers—including Named Plaintiff
Sandy Ng—to post comments professing support, such as “IF HE’S STILL IN, I’M STILL IN.”
(Ex. 45, Dep. Ex. 40 at 1.) Likewise, Alvan Chow authored popular GME posts on
WallStreetBets in late 2020 and early 2021 in which he predicted short squeezes would drive up
the stock price and reward the WallStreetBets “gamblers” for opposing larger funds. (Ex. 22,
Dep. Ex. 207 at 1; Ex. 53, Dep. Ex. 209 at 1; Ex. 54, Dep. Ex. 210 at 1.) At his deposition,
Mr. Chow characterized the subreddit as “a community known for very reckless investments, to
the point where they’re not investments.” (Ex. 4, Chow 40:16-21.) As part of the mania, retail
investors, including certain Named Plaintiffs, posted or placed joke orders or joke price targets
with sexual and drug references including the numbers “69” and “4/20.” (See, e.g., Ex. 5, Clarke
112:24-113:13; Ex. 14, Rivas 106:14-108:17; Ex. 4, Chow 111:3-19.)
These posts proved effective. The stock prices of the nine meme stocks that are the
subject of this litigation—AMC, BBBY, BB, EXPR, GME, KOSS, NOK, TR and TRVG—
stock prices rise above what may be justified by fundamentals.” (Id.) Thus, “the reluctance to
sell short could have contributed to the run-up in prices and the subsequent steep decline.” (Id.)
2
See, e.g., Roaring Kitty, 100%+ short interest in GameStop stock (GME) – fundamental &
technical deep value analysis, YouTube (July 27, 2020), available at https://www.youtube.com/
watch?v=GZTr1-Gp74U (last accessed May 24, 2023); see also Ex. 53, Dep. Ex. 209 at 1
(WallStreetBets post by Alvan Chow citing Gill’s “Roaring Kitty’s” video).
4
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 12 of 45
experienced a roller-coaster ride up and down in late January 2021. 3 For example, GME’s price
rose a remarkable 788% in the five trading days preceding the proposed Class Period (i.e.,
through January 27, 2021). (Ex. 20, Grenadier Report, fig. 2.) KOSS’s stock price rose 1,591%
over the same period. (Id.) These price run-ups occurred despite the absence of any news about
the value of these companies that could remotely justify the increases. (Id. ¶ 104.) A number of
the companies issued press releases commenting on the unusual events. For example, on January
25, BlackBerry issued a press release stating that it was “not aware of any material, undisclosed
corporate developments and has no material change in its business or affairs that has not been
publicly disclosed that would account for the recent increase in the market price or trading
volume of its common shares.” (Ex. 42, BlackBerry Press Release, Jan. 25, 2021.) On
January 27, 2021, Nokia issued a similar release. (Ex. 57, Nokia Press Release, Jan. 27, 2023.) 4
There is no doubt that these price movements were driven by the social media craze
rather than company news. On January 26, for example, GME’s share price increased by over
60% in after-hours trading after Elon Musk tweeted “GameStonk!!” with a link to
WallStreetBets. (Ex. 43, Dep. Ex. 15.) 5 Similarly, on January 22 the stock price of EXPR
increased by 40% after Will Meade, an investment commentator with a significant Twitter
following, tweeted that EXPR could be the next GME. (Ex. 55, Dep. Ex. 301.) When asked at
his deposition about news that might account for the stock price movements, Mr. Meade testified
that “the only news was that everyone in the trading community and Wall Street was looking for
the next GameStop.” (Ex. 10, Meade 94:8-23, 114:20-23.) Robinhood’s expert, Prof. Grenadier,
found that eight of the nine Affected Stocks experienced their highest five-day return over the
previous 25 years in the days preceding January 27, 2021. (Ex. 20, Grenadier Report ¶¶ 19, 78.)
In the five trading days between January 21 and January 27, 2021, the total daily volume for the
3
The nine companies are AMC Entertainment Holdings, Inc.; Bed Bath & Beyond Inc.;
BlackBerry Ltd.; Express Inc.; GameStop Corp.; Koss Corp.; Nokia Oyj; Tootsie Roll Industries,
Inc.; and trivago N.V. Plaintiffs call these stocks the “Affected Stocks.” (Dkt. No. 527-0, Am.
Compl. ¶ 1.)
4
After the Class Period, AMC, EXPR, GME and KOSS also included statements in their
SEC filings disclaiming knowledge of undisclosed information or changes in their business that
would explain the price movements. (See AMC 10-K, March 12, 2021; Express Form 10-K,
March 25, 2021; GameStop 10-K, March 23, 2021; Koss Form 10-Q, May 13, 2021.)
5
Mr. Chow testified that he liquidated his positions after Mr. Musk’s tweet because he
believed the tweet “signaled the height of the mania.” (Ex. 4, Chow 128:12-24.)
5
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 13 of 45
Affected Stocks increased extraordinarily, by almost fifteen-fold. (See Market Activity, Nasdaq,
https://www.nasdaq.com/market-activity; see also Ex. 20, Grenadier Report ¶¶ 92-96.)
III. COLLATERAL REQUIREMENTS AND TRADING RESTRICTIONS IMPOSED
BY ROBINHOOD AND OTHER RETAIL BROKERAGES
During this period of frenetic trading, Robinhood sought to manage the impact that
increasing volatility could have on its NSCC deposit requirements. Robinhood’s daily deposit
requirements with NSCC steadily increased throughout January, reaching $690 million by the
evening of January 27, 2021, an approximately ten-fold increase from the start of the month.
(Ex. 20, Grenadier Report ¶ 54 & fig. 1; Ex. 36, RHMDL00020635.) For certain volatile stocks
like GME that did not already require 100% initial and maintenance margin requirements,
Robinhood increased the margin requirements to 100%, which meant that customers needed
funds to pay for those shares in full, rather than being able to buy shares with credit. (Id. ¶¶ 46
& 50.) Robinhood implemented these requirements to mitigate the risk that its customers might
default on their ability to pay for volatile stocks. In the pre-Class Period, Robinhood also limited
the number of options for certain stocks that customers could purchase and increased capital
requirements for customers seeking to exercise options. (Ex. 38, RHMDL00047970.)
Before the markets opened on the morning of January 28, 2021, Robinhood Securities
received a notice from NSCC stating that its deposit requirements had jumped dramatically, to
over $3 billion, now nearly 20 times the deposit requirement from the start of the month and
almost 5 times what it had been the day before. (Ex. 18, Fischel Report ¶ 12; Ex. 20, Grenadier
Report ¶ 54 & fig. 1; Ex. 36, RHMDL00020635.) The $3 billion deposit requirement included a
charge due to market volatility of over $1.2 billion and an additional charge (the excessive
capital premium or “ECP”) of over $2.2 billion because of the ratio of Robinhood Securities’
deposit requirements to its on-hand capital. (Ex. 37, RHMDL00045649.) 6 As a result,
6
Plaintiffs cite to a discussion among three Robinhood employees to suggest that
Robinhood was “unaware of” the ECP component of its clearinghouse deposit. (Mot. at 5.)
None of those employees’ responsibilities, however, has anything to do with the securities
clearing processes and procedures, and as Plaintiffs well know from the documents Robinhood
has produced in this action, the employees with such responsibilities were aware of the various
components of NSCC deposit requirements. (See, e.g., Ex. 35, RHMDL00011594 (NSCC Risk
Margin Component Guide, from files of Robinhood Director of Financial Risk &
Analytics).) Plaintiffs also ignore the highly unusual nature of the ECP charge. The House
Report (which Plaintiffs cite repeatedly) states: “It is worth noting that 3 of the 4 times an Excess
6
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 14 of 45
Robinhood decided to temporarily set a number of the meme stocks to “position closing only”
(“PCO”), which permitted Robinhood customers to sell positions in those stocks if they wished,
but restricted new purchases of those volatile stocks. The thirteen PCO’ed stocks include the
nine at issue in this case, plus four others (AAL, CTRM, NAKD and SNDL). 7 (Ex. 38,
RHMDL00047970.) Robinhood announced the PCO restrictions in a blog post on the morning
of January 28, explaining that they were being implemented because of recent market volatility.
(Ex. 34, RHMDL00002200.) Shortly after Robinhood informed NSCC that it would implement
these restrictions, NSCC reduced Robinhood’s deposit requirements to roughly $1.4 billion
(predominantly the volatility-driven charge), which Robinhood paid so it could continue serving
all of its customers. (See Ex. 37, RHMDL00045649; Ex. 20, Grenadier Report ¶ 54 & fig. 1.)
As Plaintiffs concede, Robinhood’s next public statement concerning the PCO
restrictions occurred after trading closed on January 28 (i.e., after the end of the first day of the
proposed Class Period). (Mot. at 11.) That evening, CEO Vlad Tenev gave an interview on
CNBC regarding the day’s unprecedented events. 8 Mr. Tenev accurately described the PCO
restrictions and truthfully explained that Robinhood “absolutely did not do this at the direction of
any market maker, or hedge fund, or anyone we route to, or other market participants” but rather
due to Robinhood’s financial requirements, including clearinghouse deposits. 9
Capital Premium charge was calculated for Robinhood was during the Meme Stock Market
Event.” (Ex. 63, HFSC Report n.577.)
7
These companies are American Airlines Group Inc., Castor Maritime Inc., Naked Brand
Group Ltd. (now known as Cenntro Electric Group Ltd.) and Sundial Growers Inc. (now known
as SNDL Inc.).
8
Fast Money, Robinhood CEO Vlad Tenev speaks out on decision to restrict trading on
GameStop and other stocks, CNBC (Jan. 28, 2021),
https://www.cnbc.com/video/2021/01/28/robinhood-ceo-vlad-tenev-on-decision-to-restrict-
trading-on-gamestop.html (last accessed May 24, 2023).
9
Plaintiffs misleadingly assert that Robinhood employees were dissatisfied with
Robinhood’s messaging. Plaintiffs quote an employee telling COO Gretchen Howard that
“[Robinhood] should fully lay out our cards” and tell the public “about what’s happening behind
the scenes” (Mot. at 12-13), but omit Howard’s response that a “blog post [was] written” (what
became Ex. 59, Robinhood Blog Post, “An update on market volatility” (Jan. 28, 2021)) and
“waiting on approval” (Ex. 67, RHMDL00005649-50). Plaintiffs likewise cherry-pick questions
asked about Mr. Tenev’s public comments at a January 29 employee Q&A, conveniently
ignoring those that are inconsistent with their narrative. (See, e.g., Ex. 66, RHMDL00044035 at
‘036 (“There’s been a lot of out reach to traditional media to explain what happened.”).)
7
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 15 of 45
As Mr. Tenev explained, other brokers similarly imposed restrictions on meme stocks
during this period of unprecedented volatility. For example, Apex Clearing Corporation, a
clearing broker used by many introducing brokers, imposed restrictions on AMC, GME and
KOSS that impacted approximately 13 million customer accounts across Apex’s 73 introducing
broker partners (including Ally, WeBull and Alpaca). (Ex. 18, Fischel Report ¶ 40; Ex. 20,
Grenadier Report ¶¶ 48-49 & n.71.) E*TRADE also limited purchases of GME and AMC on
January 28, 2021. (Id.) These brokerages’ millions of customers accounted for a significant
portion of the trading volume in the Affected Stocks in the run-up to the Class Period. In fact,
contrary to Plaintiffs’ assertion (Mot. at 5), on average, buy volume on Robinhood accounted for
only 4.5% of the total market trading volume across the Affected Stocks during the week prior to
the proposed Class Period. (Ex. 20, Grenadier Report ¶ 150 & Ex. 17.)
The PCO restrictions remained in place for only one day, January 28. (Ex. 20, Grenadier
Report ¶ 50.) By market open on January 29, Robinhood modified the PCO restrictions to place
caps on additional purchases (i.e., a limit on the number of additional shares a customer could
purchase in certain stocks) and began lifting purchase limits until all of them were lifted by the
end of the day on February 4, 2021. (Ex. 20, Grenadier Report ¶ 52.) During this period,
Robinhood regularly updated its customers, listing the trading restrictions in effect because of the
ongoing volatility. The restrictions were widely reported and were public knowledge. 10 While
Robinhood’s purchase restrictions and limits were in place, the prices of the restricted stocks
remained volatile, moving up and down. (See Ex. 20, Grenadier Report Exs. 1, 9 & figs. 6, 7.)
The nine Affected Stocks selected by Plaintiffs experienced declines over the Class Period as a
whole, but each saw intermittent increases during the Class Period. (Id. Exs. 1A-1I.) Other
stocks on which Robinhood placed purchase restrictions and limits did not experience net
declines. (Id.) For example, CTRM, another stock Robinhood PCOed, almost doubled in price
during the Class Period. (See Market Activity, Nasdaq, https://www.nasdaq.com/market-
activity.)
10
See, e.g., Caitlin McCabe, Robinhood, Other Brokerages Restrict Trading on GameStop,
AMC, WALL ST. J. (Jan. 28, 2021, 9:05 P.M.), https://www.wsj.com/articles/online-
brokeragesrestrict-trading-on-gamestop-amc-amid-frenetic-trading-11611849934.
8
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 16 of 45
IV. NAMED PLAINTIFFS’ TRADING PRIOR TO AND DURING THE PROPOSED
CLASS PERIOD
A. Named Plaintiffs Were Aware of Co-ordinated Trading on Social Media and
Possible Short Squeezes.
All but two Named Plaintiffs bought shares in one or more of the Affected Stocks on
January 27, 2021, the final day before the Class Period, at the height of the social media craze.
(See Dkt. Nos. 366-3, 527-1; Ng 43:21-44:18; Nguyen 66:10-69:22.) Five Named Plaintiffs
bought AMC, four bought each of GME and BB, two bought NOK and one bought EXPR. (Id.)
None purchased BBBY, KOSS, TR or TRVG.
Many Named Plaintiffs testified that, rather than believing in the fundamental value of
the companies issuing the Affected Stocks, they were aware of potential short squeezes and
purchased the Affected Stocks hoping to profit from these short squeezes. For example,
Abraham Huacuja testified that he purchased shares of AMC and NOK on January 27, 2021,
without looking into the fundamentals of the companies, because “they were being shorted an
incredible amount” and he was “banking” on there being a short squeeze that he hoped would
generate a profit on these short-term investments. (Ex. 8, Huacuja 29:15-30:11, 42:14-46:13,
54:4-13 ; Ex. 25, P00002064 at -2067-2068.) Brian Harbison likewise admitted that he was
aware of and “interested in potentially participating in an attempted short squeeze of AMC.”
(Ex. 7, Harbison 52:12-57:18.) Sandy Ng, who is not a Robinhood customer and lives in
Canada, testified that he originally bought GME based on the potential for a short squeeze. (Ex.
11, Ng 25:16-21, 51:24-54:2.) Cecilia Rivas testified that during this period, she actively
followed discussions about short squeezes on WallStreetBets, and “a short squeeze would mean
that the price of a stock is driven beyond what it’s really worth.” (Ex. 14, Rivas 27:24-28:14,
56:11-17.) Both Ms. Rivas 11 and Mr. Ng held their shares of GME during the Class Period on
the belief that the short squeeze was ongoing and had not yet reached its peak. (Ex. 23, Dep. Ex.
81 (“The squeeze hasn’t squoze yet.”); Ex. 11, Ng 71:17-72:3, 83:11-20 (holding out for a
“gamma squeeze”).). 12
11
Ms. Rivas also testified that she held her single GME share as a form of “social activism”
and because investing is entertaining to her. (Ex. 14, Rivas 91:15‐91:19, 97:9-13; 160:14-19.)
12
A few Named Plaintiffs, by contrast, denied knowledge of possible short squeezes. Doi
Nguyen, for instance, purported to recall virtually nothing regarding the January and February
2021 timeframe; he testified he did not recall discussions about any possible short squeeze,
9
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 17 of 45
Numerous Named Plaintiffs admitted to reading or posting on social media during the
meme stock events. Brendan Clarke, for instance, testified that he checked WallStreetBets
multiple times a day during this period. (Ex. 5, Clarke 107:21-108:6.) Thomas Cash was also
active on WallStreetBets, which he described as a “frat house of degenerate gamblers.” (Ex. 3,
Cash 150:6-17) Similarly, Mr. Huacuja and Mr. Nguyen testified that they perused relevant
social media posts prior to the Class Period. (Ex. 8, Huacuja 62:11-19 (discussing review of
social media in the weeks before the Class Period); Ex. 12, Nguyen 46:5-47:2 (admitting he saw
on social media that AMC stock price was rising prior to the Class Period).) Mr. Ng testified
that he did not conduct any research before investing in GME, and based all of his GME trading
decisions on Keith Gil’s social media posts. (Ex. 11, Ng at 44:19-45:5.)
Other Named Plaintiffs tried to distance themselves from their participation in this social
media frenzy, even though they engaged repeatedly on various platforms regarding the meme
stock events in the days leading up to and during the Class Period. For instance, Ava Bernard
tweeted repeatedly in early 2021 (see, e.g., Ex. 1, Bernard 127:23-128:12), including tweets in
which Ms. Bernard stated that retail trading was “speculati[on]” (Ex. 47, Dep. Ex. 110), that she
wanted to “send[] a message” with her trading (Ex. 48, Dep. Ex. 111) and that AMC was being
heavily shorted (Ex. 46, Dep. Ex. 104), despite testifying that she could not recall what her
tweets meant. Additionally, Marcel Poirier (who lives in Canada and was not a Robinhood
customer) testified that he did not create a Reddit account until after Robinhood imposed
restrictions and did not know what WallStreetBets was. (Ex. 13, Poirier 55:6-12.) According to
Reddit, however, Mr. Poirier created a Reddit account on January 15, 2021 (Ex. 49, Dep.
Ex. 125), and commented on WallStreetBets that day. (Ex. 50, Dep. Ex. 126.) Mr. Poirier also
denied being aware of possible short squeezes or social media frenzy about BB, despite tweeting
about those very issues. (Ex. 13, Poirier 105:3-9; Ex. 51, Dep. Ex. 133; Ex. 52, Dep. Ex. 145.)
B. Named Plaintiffs’ Investment Strategies (or Lack Thereof).
Most Named Plaintiffs testified that they conducted little to no research in connection
with their investments, and instead traded on their “gut” or based on “momentum” or “price
movements.” (See, e.g., Ex. 14, Rivas 45:12-18 (conceding she did not review SEC filings,
earning announcements or cash flow projections before investing, nor did she have any real
contemporaneous market conditions or the reasons for his trades in the Affected Stocks. (Ex. 12,
Nguyen 30:20-32:10, 38:20-39:3; 52:17-53:16.)
10
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 18 of 45
investing strategy); Ex. 12, Nguyen 28:4-30:8 (testifying he trades at random, based on gut
feeling and previous price movements); Ex. 7, Harbison 34:15-35:25 (testifying to trading based
on stock price graphs and trend lines); Ex. 6, Gurney 52:22-53:15 (testifying that he does not
research potential investments, keep up to date with stock market news or consider earnings);
Ex. 11, Ng 54:7-10 (testifying that he did not conduct his own GME research).) Indeed, Mr.
Clarke conceded that he purchased GME on January 27, 2021, based on “momentum” even
though he “didn’t really think that it was a fair value” for the stock because he did not believe the
fundamentals of the company were strong. (Ex. 5, Clarke 40:18-20, 56:24-57:5, 77:19-22.)
Lead Plaintiff Laine-Beveridge also testified that he makes investment decisions based on
“gut” and does not review SEC filings before investing in a company. (Ex. 9, Laine-Beveridge
59:8-11.) With respect to his investments in AMC and NOK, he conceded that he did not
research the financials or business metrics of either company prior to investing; instead, he
traded based on momentum of the Affected Stocks. (Id. 58:12-59:7.) In Mr. Laine-Beveridge’s
opinion, any class members who bought shares of the Affected Stocks based on social media
(and he assumed some did) were plainly following a different investment strategy than him—one
that he believed was “probably not going to work.” (Id. 100:23-104:16.)
C. Named Plaintiffs Were Aware of the Robinhood Restrictions When They
Sold Their Shares.
All but one of the Named Plaintiffs admit they knew about Robinhood’s trading
restrictions when they sold their shares during the Class Period. (See Ex. 9, Laine-Beveridge
121:11-17; Ex. 3, Cash 184:18‐22; Ex. 8, Huacuja 94:6-19; Ex. 5, Clarke 110:24-111:12; Ex. 7,
Harbison 152:5-17; Ex. 6, Gurney 87:22-25; Ex. 13, Poirier 151:19-153:2; Ex. 14, Rivas 99:16-
22; Ex. 1, Bernard 154:22-155:5; Ex. 2, Bohórquez 143:13-21; Ex. 12, Nguyen 89:21-23.) Mr.
Ng (a non-Robinhood customer) is the only exception, but he later admitted to learning of
trading restrictions imposed by another broker on January 28, days prior to his Class Period
sales. (Ex. 11, Ng 10:12-11:3, 75:22-76:1; see Ex. 44, Dep. Ex. 37.)
In its order denying Robinhood’s motion to dismiss, the Court relied repeatedly on
Plaintiffs’ allegations—which had to be taken as true at the pleading stage, but must now be
supported by evidence—that “Plaintiffs sought to understand why Robinhood imposed the
restrictions”, (Dkt. No. 503 at 30-31), and that “[b]elieving that the restrictions were the
byproduct of market volatility as opposed to Robinhood’s self -interest, Plaintiffs sold their
shares”, (id., see also id. at 43-47). Few of the Named Plaintiffs, however, were even aware of
11
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 19 of 45
the reasons Robinhood gave for the restrictions at the time they sold (nor are they even aware
now). Mr. Huacuja, Mr. Clarke, Mr. Harbison, Mr. Gurney and Ms. Bernard testified that they
had no recollection of any reason that Robinhood might have given for imposing the
restrictions. (Ex. 8, Huacuja 94:15-98:16; Ex. 5, Clarke 110:24-111:12; Ex. 7, Harbison 153:13-
18; Ex. 6, Gurney 93:22-25; Ex. 1, Bernard 163:14-167:1.) While Mr. Laine-Beveridge—the
individual appointed by the Court as Lead Plaintiff—knew that Robinhood stated that it
implemented the restrictions in light of the ongoing market volatility, he admitted that he did not
believe that any reason Robinhood gave affected stock prices. (Ex. 9, Laine-Beveridge 19:16-
20:3, 169:14-19.) And, although Plaintiffs claim that Robinhood’s restrictions induced them to
sell at deflated prices, six Named Plaintiffs bought shares of Affected Stocks during the Class
Period. (Ex. 61, Ng Certification, Dkt. No. 527-1 at 18; Ex. 32, Dep. Ex. 265 at 5; Ex. 39, Dep.
Ex. 105; Ex. 65, P00002863; Ex. 13, Poirier 191:17-192:18; Ex. 12, Nguyen 102:20-104:10.)
D. Several Named Plaintiffs Profited on Their Trades During the Class Period.
Several Named Plaintiffs, including the Lead Plaintiff, profited from their sales of the
Affected Stocks. As discussed below (see infra Section III.A), Mr. Laine-Beveridge has
provided three PSLRA certifications; the first, filed in July 2021 with his motion for appointment
as lead plaintiff, listed AMC and NOK trades. (See Dkt. No. 366-3 at 3.) This Court certified
Mr. Laine-Beveridge as lead plaintiff based on his claim to have suffered the greatest net loss, as
his losses on NOK outweighed his gains on AMC. (See Dkt. No. 420 at 5.) However, nearly
two years later, Mr. Laine-Beveridge provided a second certification, which no longer includes
any trades in NOK. (Compare Dkt. No. 366-3 at 2 with Dkt. No. 559-6 at 5.) When asked about
this change, Mr. Laine-Beveridge testified that he is not a member of the proposed class as it
relates to NOK because “one of the issues is that I didn’t lose money on Nokia during the Class
Period.” (Ex. 9, Laine-Beveridge 164:4-165:21, 135:10-24, 147:19-148:2.) Mr. Laine-
Beveridge similarly made money on his AMC trades. (See Ex. 41, Dep. Ex. 274.)
Other Named Plaintiffs, specifically Messrs. Cash, Gurney and Poirier, sold for a gain
during the Class Period. (See, e.g., Ex. 3, Cash 199:4-205:20; Ex. 6, Gurney 67:23-69:2; Ex. 26,
Dep. Ex. 131; Ex. 27, Dep Ex. 132; Ex. 28, P00002304; Ex. 29, P0002324; Ex. 30, P00002339;
Ex. 31, Dep. Ex. 246; Ex. 40, RHMDL00097432; Ex. 72, Dep. Ex. 141.) Mr. Ng did not time
his sale as fortuitously. As of January 31, 2021, after the PCO had been lifted and Robinhood
was gradually loosening restrictions, Mr. Ng had an unrealized gain of over 200% on his GME
12
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 20 of 45
trades, yet he continued to hold based on Keith Gill’s advice, and as a result lost money. (Ex. 11,
Ng 44:19-45:5, 52:7-19.) 13
LEGAL STANDARD
Plaintiffs “seeking to maintain a class action ‘must affirmatively demonstrate [their]
compliance’ with Rule 23.” Comcast Corp. v. Behrend, 569 U.S. 27, 33 (2013) (quoting
Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011)). To do so, a plaintiff must prove by a
preponderance of the evidence “that there are in fact sufficiently numerous parties, common
questions of law or fact, typicality of claims or defenses, and adequacy of representation, as
required by Rule 23(a).” Id. (internal quotation marks and citation omitted).
In addition, a plaintiff must demonstrate “through evidentiary proof at least one of the
provisions of Rule 23(b).” Id. “The Rule 23(b)(3) predominance inquiry tests whether proposed
classes are sufficiently cohesive to warrant adjudication by representation.” Amchem Prods.,
Inc. v. Windsor, 521 U.S. 591, 623-24 (1997) (noting the predominance requirement “is far more
demanding” than Rule 23(a)’s commonality requirement). “[W]here members of a proposed
class will need to present evidence that varies from member to member,” individual questions
predominate over common questions, precluding certification. Tyson Foods, Inc. v.
Bouaphakeo, 577 U.S. 442, 453 (2016) (internal quotation marks and citation omitted).
To determine whether plaintiffs have satisfied Rule 23’s requirements, courts must
conduct a “rigorous analysis” of the motion and the evidence upon which it relies. Wal-Mart,
564 U.S. at 351. The Eleventh Circuit has explained that “class certification is an evidentiary
question, not just an analysis of the pleadings.” Bussey v. Macon Cnty. Greyhound Park, Inc.,
562 F. App’x 782, 790 (11th Cir. 2014). As both the Supreme Court and Eleventh Circuit have
instructed, district courts must “probe behind the pleadings,” which may require consideration of
the merits. Comcast, 569 U.S. at 33, 35 (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147,
160 (1982)) (explaining that courts must “determin[e] that Rule 23 is satisfied, even when that
requires inquiry into the merits of the claim”); see, e.g., Wal-Mart, 564 U.S. at 351 (“[T]he class
determination generally involves considerations that are enmeshed in the factual and legal issues
13
Other Named Plaintiffs profited from sales of the Affected Stocks in the days just before
the Class Period. (See Ex. 7, Harbison 140:15‐142:6; 187:14‐188:9; 120:20-22; Ex. 14, Rivas
67:3-11, 71:2-5.) That includes Santiago Gil Bohórquez, a resident of Colombia who is not a
Robinhood customer, and who asked on Twitter whether he could “get into trouble” for his
conduct. (See Ex. 24, Dep. Ex. 275 (asking about “legality of what is happening”).)
13
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 21 of 45
comprising the plaintiff’s cause of action.”) (internal quotation marks and citation omitted);
Valley Drug Co. v. Geneva Pharms., Inc., 350 F.3d 1181, 1188 n.15 (11th Cir. 2003) (“[T]he
trial court can and should consider the merits of the case to the degree necessary to determine
whether the requirements of Rule 23 will be satisfied.”); Kirkpatrick v. J.C. Bradford & Co., 827
F.2d 718, 722-23 (11th Cir. 1987) (explaining that courts look beyond the pleadings “in
determining whether a motion for class certification should be granted” and noting that “it is
often necessary for a district court to consider, for example, a deposition of a named plaintiff”).
Plaintiffs assert market manipulation claims under Sections 9(a)(2) and 10(b) of the
Securities Exchange Act. Under Section 9(a)(2), a plaintiff must prove that “(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) that was relied on by the plaintiff, (5) and affected
plaintiff’s purchase or selling price.” (Dkt. 503 (the “MTD Order”) at 16.) Section 10(b)
“requires a plaintiff to 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) furthered by the defendant’s use of the mails or any facility of a
national securities exchange.” (Id. at 38.)
ARGUMENT
Class certification should be denied for four reasons. Because the markets for the
Affected Stocks were inefficient during the Class Period, Plaintiffs will be required to prove
reliance on an individualized basis and do not satisfy predominance under Rule 23(b)(3). (See
Part I.) Because the markets were inefficient, Plaintiffs also do not satisfy the Comcast
requirement under Rule 23(b)(3) of showing that damages can be calculated on a classwide basis
consistent with their theory of liability. (See Part II.) Further, Plaintiffs lack standing to bring
certain claims, and because they are open to unique defenses, they cannot satisfy the Rule
23(b)(3) typicality requirement. (See Part III.) Finally, the Named Plaintiffs will not adequately
prosecute the action and substantial conflicts exist. (See Part IV.) 14
14
Robinhood does not dispute that Plaintiffs satisfy Rule 23(a)(1) and 23(a)(2).
14
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 22 of 45
I. PLAINTIFFS WILL BE REQUIRED TO PROVE RELIANCE ON AN
INDIVIDUALIZED BASIS, PRECLUDING CERTIFICATION UNDER RULE
23(b)(3).
Reliance is an element of Plaintiffs’ Section 9(a) and 10(b) claims. See ATSI Commc’ns,
Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 101 (2d Cir. 2007) (Section 10(b) claims); Baum v.
Phillips, Appel & Walden, Inc., 648 F. Supp. 1518, 1530 (S.D.N.Y. 1986) (Section 9(a) claims).
Plaintiffs cannot establish classwide reliance and thus will have to prove reliance on an
individualized basis, precluding class certification.
In a leading case about class actions for market manipulation claims, Desai v. Deutsche
Bank Sec. Ltd., 573 F.3d 931 (9th Cir. 2009), the Ninth Circuit held that the plaintiffs could not
invoke a presumption of reliance and affirmed the denial of class certification. The court
explained that reliance “establishes the causal connection between the alleged fraud and the
securities transaction.” Id. at 939. Accordingly, “[w]hether common questions of law or fact
predominate in a securities fraud action often turns on the element of reliance.” Erica P. John
Fund, Inc. v. Halliburton Co., 563 U.S. 804, 810 (2011) (Halliburton I). “Whether or not
[Plaintiffs] can rely on a presumption of reliance determines whether their putative class can
meet the requirements of Rule 23(b)(3). For without a class-wide presumption, [Plaintiffs]
would have to prove reliance as to each class member individually.” Desai, 573 F.3d at 940.
The only potentially applicable path for proving reliance on a classwide basis is the
presumption of reliance pursuant to Basic Inc. v. Levinson, 485 U.S. 224 (1988). Plaintiffs in
this case cannot invoke the Basic presumption because the markets for the Affected Stocks were
not efficient during the relevant time period. Presumably because Plaintiffs know they cannot
rely on Basic, they argue in the alternative that they do not need to show reliance at all or, if they
do, that they can rely upon the presumption of reliance in Affiliated Ute Citizens of Utah v.
United States, 406 U.S. 128 (1972). (Mot. at 11-14, 16-21.) Plaintiffs’ arguments lack merit.
They are required to demonstrate reliance, and they cannot invoke the “common scheme”
doctrine or the Affiliated Ute presumption in a market manipulation case.
A. Plaintiffs Do Not Satisfy the Basic Presumption of Reliance.
Securities fraud class actions for exchange-traded stocks normally satisfy the
predominance requirement because reliance can be presumed based on the existence of an
efficient market. But this is not a normal case. To qualify for the classwide presumption of
reliance under Basic, Plaintiffs must prove that the markets for the Affected Stocks were
15
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 23 of 45
efficient during the Class Period notwithstanding the social-media-driven frenzy of high prices
and extreme volatility that was unrelated to the release of company-specific value-relevant
information. They cannot do so.
1. Plaintiffs Need To Meet the Basic Requirement of Efficient Markets
To Satisfy Reliance on a Classwide Basis.
In Basic, the Supreme Court recognized a rebuttable presumption of reliance where “the
market price of shares traded on well-developed markets reflect[] all publicly available
information.” 485 U.S. at 246; see ATSI, 493 F.3d at 100 n.4 (applying the presumption in the
context of a market manipulation claim); Dodona I, LLC v. Goldman, Sachs & Co., 847 F. Supp.
2d 624, 651 (S.D.N.Y. 2012) (explaining that “[i]n ATSI the Second Circuit essentially
incorporated ‘fraud on the market’ into the standard for market manipulation by requiring that
plaintiffs show ‘reliance on an assumption of an efficient market’”) (quoting ATSI, 493 F.3d at
99-103). Thus, “the presumption depends upon the efficiency of the market in which the
security trades.” Desai, 573 F.3d at 942. Accordingly, a plaintiff must show that the stock at
issue traded in an efficient market to invoke the presumption, a presumption that the defendant
can then rebut as to particular plaintiffs. See FindWhat Inv. Grp. v. FindWhat.com, 658 F.3d
1282, 1310 (11th Cir. 2011). As the Eleventh Circuit explained in FindWhat, an efficient market
“rapidly and efficiently translates public information into the security’s price.” Id. A corollary
is that a company’s stock price typically does not move significantly (after accounting for market
and industry returns) without new, value-relevant information regarding the company and its
business. See id.
Plaintiffs first try to duck this issue by arguing that “whether the markets for the Affected
Stocks were efficient” is “a merits question not ripe for decision at class certification.” (Mot. at
14.) But this conflates reliance on the integrity of the markets, which is an element of their
market manipulation claims, with the Basic “fraud on the market presumption,” which is a means
of establishing classwide reliance under Rule 23(b)(3). 485 U.S. at 247. To certify a class,
Plaintiffs must qualify for a classwide presumption of reliance, and whether the markets for the
Affected Stocks were efficient determines whether Plaintiffs can invoke the Basic presumption.
Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 473-74 (2013).
Plaintiffs then strain to argue that because this is a market manipulation case, “Basic
market efficiency . . . is [not] required to prove classwide reliance.” (Mot. at 15.) That also is
not the law. No case cited by Plaintiffs even suggests otherwise. To the contrary, courts have
16
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 24 of 45
rejected any proposed exception for market manipulation cases. In the Desai case, the district
court rejected a proposed exception to the Basic theory of reliance because “[c]ourt[s] may not
presume reliance in a manipulation case if the market is not efficient.” In re GenesisIntermedia,
Inc. Sec. Litig., No. 01-CV-9024, 2007 WL 1953475, at *8 (C.D. Cal. June 28, 2007), aff’d sub
nom. Desai, 573 F.3d 931. The court explained that a so-called “integrity of the market” theory
of reliance was “logically flawed because the inference of reliance is broken if the market price
of a security does not reflect the manipulative activity.” Id. at *8; see also Desai, 573 F.3d at
942 (noting that “[w]e are chary” of the proposed exception). Other courts agree that the
requirement of showing market efficiency under Basic to satisfy classwide reliance applies to
“misrepresentation and manipulation claims alike.” See Merrill Lynch Auction Rate Sec. Litig.,
704 F. Supp. 2d 378, 394 (S.D.N.Y. 2010) (citing cases).
Plaintiffs then misstate the applicable standard for evaluating market efficiency,
incorrectly arguing that efficiency requires “a bona fide market, nothing more.” (Mot. at 14.) In
support of this proposition, Plaintiffs cite Fezzani v. Bear, Stearns & Co., 716 F.3d 18, 23 n.3
(2d Cir. 2013) (“Fezzani I”), reh’g denied, 777 F.3d 566 (2d Cir. 2015) (“Fezzani II”). (Mot. at
14.) But that case does not support Plaintiffs’ claim that the mere existence of public trading is
sufficient to establish efficiency for Basic purposes. In Fezzani, as in ATSI, the plaintiffs brought
market manipulation claims on an individual basis, not as a class. Fezzani I, 716 F.3d at 20; see
ATSI, 493 F.3d at 101. Because there were no class claims, the plaintiffs were not required to
show that they could prove reliance on a classwide basis. As such, fraud on the market and the
Basic presumption were not at issue. See Fezzani II, 777 F.3d at 572. Fezzani thus expressed no
opinion on the fraud on the market presumption in a class action. Instead, the court’s statement
that “an efficient market free of manipulation” referred to “a bona fide market ‘free of
manipulation’” described the element of reliance for an individual investor to state a Rule 10b-5
manipulation claim. Fezzani I, 716 F.3d at 23 & n.3. 15
Basic sets a higher bar for class actions. In order for a fraud on the market to be possible,
the market must incorporate all information that is relevant to the company’s value. FindWhat,
15
Regardless, as Robinhood establishes below, Named Plaintiffs did not rely upon any
belief that the markets for the Affected Stocks were bona fide markets free of manipulation due
to the extraordinary run-up of the stock prices in the days leading up to the Class Period.
17
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 25 of 45
658 F.3d at 1310. 16 Even if some investors may be able to testify on an individualized basis to a
belief in “a bona fide market ‘free of manipulation,’” the court cannot presume reliance on a
classwide basis on those facts alone. Fraud on the market under Basic requires not merely a
bona fide market, but an efficient one, meaning a market in which stock-price movements have a
logical relationship to news about the company’s value. Put simply, the burden of showing
reliance for every class member is higher than the burden of showing reliance for one. Fezzani
thus does not bear on the standard Plaintiffs must meet to show classwide reliance.
2. Plaintiffs Fail To Meet the Basic Requirement of Efficient Markets.
Plaintiffs have failed to establish market efficiency under the standard articulated in
Basic. While markets for exchange-traded stocks, such as the ones at issue here, may be
“generally efficient,” there can be aberrational periods when the markets are temporarily
inefficient. Local 703, I.B. of T. Grocery & Food Emps. Welfare Fund v. Regions Fin. Corp.,
762 F.3d 1248, 1255 (11th Cir. 2014); (see Ex. 16, Werner FXCM 67:22-68:3 (Plaintiffs’ expert
agrees that it is “possible for a market to be efficient at one point in time but not another”)). That
temporary inefficiency precluding a presumption of reliance is what happened here. To be clear,
Robinhood does not argue that the markets for the Affected Stocks were never efficient, but
rather that the expert analysis and facts establish that they were inefficient immediately
preceding the Class Period as well as during the Class Period.
First, Plaintiffs’ claim of efficiency turns entirely on the opinions of their proposed
expert, Dr. Adam Werner. But his opinions on efficiency are of no help to class certification
because Dr. Werner’s primary opinion is that the markets for seven of the nine Affected Stocks
were efficient during the full year before the Class Period. 17 But that is beside the point.
16
Plaintiffs also contend that the Court in Halliburton Co. v. Erica P. John Fund, Inc., 573
U.S. 258 (2014) (Halliburton II) rejected the existence of a relationship between efficiency and
value-relevant news. (Mot. at 16 n.34.) They claim that such a relationship is necessary only
under “fundamental” efficiency. That is incorrect. Halliburton II affirmed the efficient market
hypothesis as articulated in the academic literature, under which a stock’s price should move in
response to news about a company’s value. See Halliburton II, 573 U.S. at 269-73; (see Daubert
Mot. at 10-12).
17
Dr. Werner does not opine that the markets for the other two Affected Stocks (KOSS and
TR), which were lightly-traded, small-cap stocks not followed by analysts, were efficient even
for the year leading up the Class Period. (See Mot. at 21.) Accordingly, Plaintiffs have failed to
meet their burden to certify a class that includes people who transacted in those two stocks.
18
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 26 of 45
Dr. Werner does not analyze whether the markets were efficient during the Class Period at
all. (See Mot. at 16.) 18 Plaintiffs assert that “only the sale decision is relevant to seller class
members’ reliance,” yet their expert examines the markets for the Affected Stocks only “in the
year just before the Class Period” (i.e., when the Named Plaintiffs purchased the Affected
Stocks, and before the sales at issue). (Id. at 4, 17 (emphasis added).) 19 Robinhood’s expert,
Prof. Grenadier, did analyze the Class Period, and concluded that the markets for the Affected
Stocks were inefficient (see Ex. 20, Grenadier Report § VI)—a point Dr. Werner does not
contest. (Ex. 21, Werner Rebuttal ¶ 17; Ex. 15, Werner 31:11-17.)
Dr. Werner’s efficiency opinions are also unreliable under Daubert even aside from the
fact that he analyzes the wrong time period. 20 Dr. Werner performed a “news/no-news” test to
determine whether there are more statistically significant price movements on days with news
than days without news. (Mot. at 19.) This methodology defined the “news” days as those with
the most articles mentioning the companies at issue, regardless of whether the articles contained
value-relevant news. (See Daubert Mot. at 10-15.) Dr. Werner’s definition of “news,” therefore,
improperly includes articles—common on the unusual facts of this case—about price
movements, bubbles and squeezes, and even articles pointing out the absence of news. (See id.
at 13.) For example, Dr. Werner classified news articles about press releases from companies
that felt compelled to note publicly that there was no company news to support the stock-price or
volume increases at this time, as “news” that Dr. Werner would expect would impact their stock
price. (See Ex. 70 (Jan. 25, 2021 article about BlackBerry’s statement); Ex. 71 (Jan. 27, 2021
18
Plaintiffs contend that “[c]ourts recently held that two stocks at issue had traded in
efficient markets” (Mot. at 17 n.36), but fail to mention that the courts were analyzing efficiency
several years prior to the period at issue here. See Hawaii Structural Ironworkers Pension Tr.
Fund, Inc. v. AMC Entm’t Holdings, Inc., 338 F.R.D. 205, 210, 217 (S.D.N.Y. 2021) (examining
December 2016 through August 2017); Pearlstein v. BlackBerry Ltd., No. 13-cv-7060, 2021 WL
253453, at *1, *15 (S.D.N.Y. Jan. 26, 2021) (examining March through September 2013).
19
Dr. Werner testified that Plaintiffs’ counsel specifically instructed him to study market
efficiency prior to, and not during, the Class Period. (See Ex. 15, Werner 31:11-23.)
20
It is no wonder that Dr. Werner admitted that in more than a dozen prior cases as a class
certification “expert,” he used a different “news/no-news” test; that he had never applied the
methodology for the “news/no-news” test he used here; and that he began his work here using a
different methodology and changed midstream. (Ex. 15, Werner 173:16-174:8, 227:17-22.)
19
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 27 of 45
article about Nokia’s statement).) This methodology is circular, and wholly deficient under
Daubert for the reasons articulated in Robinhood’s Daubert motion.
Second, Robinhood’s experts have shown that information about the value of the nine
companies at issue cannot explain the large stock-price run-up observed during this period, a
paradigmatic example of an inefficient market. (See Ex. 20, Grenadier Report § VI.) These
price run-ups were unprecedented; for example, GME rose from its opening price of $19 on
January 4, 2021, to as high as $380 on January 27, 2021, an increase of approximately
1,900%. (See Ex. 18, Fischel Report ¶¶ 9, 32.) Prof. Grenadier showed that the returns on the
Affected Stocks were so large that an investor who held the Affected Stocks from January 21 to
27, 2021, would have outperformed every portfolio out of a million randomly selected portfolios
held for five trading days in the past 25 years. (See Ex. 20, Grenadier Report ¶ 80.) He also
found that the extreme price movements were accompanied by significant increases in trading
volume and volatility. For example, on three days during the week starting January 21, 2021,
GME had a daily turnover ratio of more than 200%, indicating that the number of shares bought
and sold in a single day was more than twice the number of GME shares outstanding. (Id. ¶ 94.)
Prof. Grenadier and Prof. Fischel found that these extreme price movements were not
associated with company-specific, value-relevant information that could explain such dramatic
movements. (See id. § VI.B.2; Ex. 18, Fischel Report ¶ 24.) Indeed, more than half of the
companies at issue stated publicly that they were unaware of undisclosed information or changes
in their business conditions that would account for the price movements. (See Ex. 20, Grenadier
Report ¶¶ 98-99.) Many of the days on which the large run-ups occurred directly prior to the
Class Period did not contain any company news, with the only news concerning retail investor
coordination and short squeezes, which is not value-relevant information that moves prices in an
efficient market. (Id. ¶¶ 100-104.) Moreover, as market participants at the time recognized, the
price increases in the Affected Stocks occurred in connection with short squeezes and
coordinated trading, and prices were thus artificial. (See Ex. 18, Fischel Report ¶¶ 25-28.)
As Prof. Grenadier further explains, short-sale constraints can impede market efficiency
and exacerbate this market distortion, preventing informed investors with capital resources
(arbitrageurs) from trading to correct mispricing, as they would in an efficient market. (Ex. 20,
Grenadier Report ¶¶ 101, 107-111.) When arbitrageurs face coordinated trading by less
sophisticated investors, their ability to correct mispricing can be limited in the short term,
20
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 28 of 45
causing the market to be temporarily inefficient. (Id. ¶ 110.) Consistent with established finance
theory, Prof. Grenadier notes that academic research has found that short squeezes impacted at
least five of the Affected Stocks (GME, AMC, BBBY, EXPR and TR), with analysts and market
observers attributing the price movements in the remaining stocks to short squeezes or attempted
short squeezes, which are inconsistent with an efficient market. (Id. ¶¶ 133-136.)
The absence of a relationship between price movements in the Affected Stocks and
disclosure of new, value-relevant information disproves market efficiency. See FindWhat, 658
F.3d at 1310 (“A corollary of the efficient market hypothesis is that disclosure of confirmatory
information—or information already known by the market—will not cause a change in the stock
price.”); In re Am. Int’l Grp., Inc. Sec. Litig., 265 F.R.D. 157, 180-81 (S.D.N.Y. 2010) (denying
class certification for failure to prove an efficient market under Basic when “the price of [the
relevant] bonds [was not] responsive to company-specific news”); (see Ex. 20, Grenadier Report
¶ 13; Ex. 17, Werner Hi-Crush 124:25-125:4 (where Dr. Werner previously testified that “if [he]
saw all sorts of crazy stock price movements on no information, that might inform [him] that the
stock wasn’t efficient.”)). Here, where the stock-price movements bear no relationship to news
about the value of the at-issue companies, Plaintiffs cannot establish Basic market efficiency.
Third, many Named Plaintiffs conceded at deposition that they believed some Affected
Stocks were impacted by short squeezes and admitted that some Affected Stocks were mispriced
prior to any alleged market manipulation by Robinhood. (See Statement of Facts IV.A-IV.B.)
Mr. Clarke, for example, testified that he bought GME on January 27, 2021, at a price that he
“didn’t really think . . . was a fair value” because he did not believe the fundamentals of the
company were strong. (Ex. 5, Clarke 40:18-20, 124:23-125-12.) Similarly, Mr. Huacuja bought
GME “banking on there being a short squeeze,” from which he hoped to profit. (Ex. 8, Huacuja
29:15-30:11.) 21 For these Plaintiffs, who understood the markets for the Affected Stocks were
inefficient immediately prior to the Class Period, it strains credulity to believe that they suddenly
assumed the markets became efficient on January 28 when Robinhood implemented its PCO
21
As one third-party investor explained when asked about news that might explain the price
movements in the Affected Stocks: “Again, the only news was that everyone in the trading
community and Wall Street was looking for the next GameStop,” adding “you couldn’t miss the
news . . . every article every day from the sources I followed was about GameStop, short
squeezes, et cetera.” (Ex. 10, Meade 94:8-23, 114:20-23.)
21
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 29 of 45
restrictions. Even if class members could invoke such an outlandish and illogical assumption, all
but one Named Plaintiff testified that they knew about Robinhood’s restrictions when they sold
their shares of the Affected Stocks during the Class Period. (See Statement of Facts IV.C.)
Thus, even on Plaintiffs’ theory that these restrictions manipulated the market, Plaintiffs
willingly traded on an understanding that the market was not efficient at this time.
In sum, Plaintiffs quote Basic, asking, “Who would knowingly roll the dice in a crooked
crap game?” (Mot. at 16.) But that is precisely what Named Plaintiffs and other retail investors
did here. They bought shares in the Affected Stocks, knowing the prices were distorted by a
social media craze and attempted short squeezes. All twelve Named Plaintiffs bought on January
27, 2021, at the peak of the market distortion, hoping to make money from timing their trades
before the bubble burst. It is hard to imagine a group of investors who relied on the efficiency of
the market less than the putative class here. This not only precludes Plaintiffs from invoking the
Basic presumption as to the class, but also establishes that Robinhood has rebutted the Basic
presumption with respect to each Named Plaintiff. See Halliburton II, 573 U.S. at 276 (holding
defendants may, under Basic, “rebut the presumption of reliance with respect to an individual
plaintiff by showing that he did not rely on the integrity of the market price in trading stock.”).
Robinhood’s evidence “severs the link between the alleged” manipulation and Plaintiffs’ trading
decisions, and thus “rebut[s] the presumption of reliance.” Basic, 485 U.S. at 248.
For each of these reasons, Plaintiffs cannot rely on the Basic presumption, individual
issues of reliance predominate, and a class cannot be certified under Rule 23(b)(3).
B. The “Common Scheme” Exception Does Not Apply.
Plaintiffs also assert that they do not need to show reliance because they alleged “a
common scheme.” (Mot. at 11.) Plaintiffs contend this so-called “common scheme” exception
applies because Robinhood communicated the same message to the public as part of a “common
scheme.” (Id.) Plaintiffs are wrong. This doctrine does not relieve a plaintiff’s burden of
establishing reliance in a market manipulation case, nor would it apply on the facts of this case.
First, Plaintiffs cite no case in which a court has applied the so-called “common scheme”
exception to a market manipulation claim; Plaintiffs’ only cases involved misrepresentation
claims. Even when a plaintiff alleges a “comprehensive scheme to manipulate that include[s]
collateral omissions and misrepresentations in furtherance of the scheme,” courts have refused to
apply this doctrine in market manipulation cases. For example, in In re Merrill Lynch Auction
22
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 30 of 45
Rate Securities Litigation, the court rejected the argument “that reliance need not be shown” in a
case alleging a comprehensive scheme to defraud because “reliance is a required element of a
market manipulation claim.” 704 F. Supp. 2d at 393, 398 (internal quotations omitted).
Second, even where this supposed doctrine has been applied in misrepresentation cases,
“it must be demonstrated that the same or substantially the same misrepresentations were made
to the putative class.” Bruhl v. Price Waterhousecoopers Int’l, 257 F.R.D. 684, 696 (S.D. Fla.
2008) (where all class members received monthly statements showing the investment fund’s net
asset value (“NAV”)). Here, Plaintiffs cite alleged misrepresentations in a Robinhood blog post,
as well as statements made by Mr. Tenev (after the market closed on January 28, which was the
first full day of the proposed class period). (Mot. at 11.) But the record refutes the notion that
all class members should be presumed to have seen these statements. To the contrary, many of
the Named Plaintiffs testified that they had no idea why Robinhood imposed the PCO
restrictions. (Ex. 8, Huacuja 94:15-98:16; Ex. 5, Clarke 110:24-111:12; Ex. 7, Harbison 153:13-
18; Ex. 6, Gurney 93:22-25; Ex. 1, Bernard 163:14-167:1.) It is also unlikely that the tens of
thousands of putative class members who were not Robinhood customers—many of whom might
never have heard of Robinhood—were any more likely than the Named Plaintiffs to have seen
the alleged misrepresentations. This is not a case in which all class members received
documents containing the same alleged misstatements, and Plaintiffs must do more than merely
argue that any such statements were publicly available—otherwise this supposed exception
would eliminate the reliance element from almost all Section 10(b) cases. Cf. Kennedy v.
Tallant, 710 F.2d 711, 715, 717 (11th Cir. 1983) (applying common scheme doctrine when
defendants failed “to disclose material facts in the [relevant] prospectuses,” which every class
member received (as prospectus delivery was legally required before a purchase)).
Third, to qualify for the “common scheme” exception, Plaintiffs must establish that the
alleged misstatements “were of such a nature that it can be presumed that all members of the
class relied upon them either to invest in the first instance, to remain in the investment, or to
redeem their interest in the investment.” Bruhl, 257 F.R.D. at 696 (emphasis added). Plaintiffs
cannot possibly demonstrate that the alleged misstatements regarding the reasons for
Robinhood’s restrictions are “of such a nature that it can be presumed that all class members
relied upon them” in making their investment decisions (such as the funds’ NAV in Bruhl) (id.),
when the Named Plaintiffs’ testimony demonstrates that even they did not rely on Robinhood’s
23
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 31 of 45
stated reasons for the restrictions in deciding whether to trade or were completely unaware of the
reasons. (See Statement of Facts IV.C, IV.D (recounting Lead Plaintiff’s testimony that the
reasons did not matter and Named Plaintiffs’ lack of awareness of the reasons).)
Fourth, courts only apply this doctrine in misrepresentations cases where—unlike here—
the securities at issue are “not traded on the open market.” Kirkpatrick, 827 F.2d at 723
(emphasis added). When “securities . . . are openly traded,” a plaintiff can attempt to leverage
the “traditional fraud-on-the-market” theory, in which “plaintiffs[] rel[y] on the integrity of an
open and developed market to set a price accurately reflecting the security’s value.” Id. In the
absence of a public market, plaintiffs may be able to satisfy reliance when the defendant
“engaged in a common course of conduct” of fraudulent misrepresentation “by affirmative acts
and by omission.” Id. at 724. Here, however, the Affected Stocks were traded on “an open and
developed market,” and thus the common scheme exception does not apply. Id. at 723.
Fifth, as discussed above, many of the Named Plaintiffs—as well as other putative class
members—affirmatively “disclaim[ed] th[e] notion” that they relied on an assumption of market
efficiency in the days leading up to the Class Period, when they purchased their shares of the
Affected Stocks. In re GenesisIntermedia, Inc. Sec. Litig., 232 F.R.D. 321, 333 (D. Minn. 2005)
(denying class certification where plaintiffs alleging market manipulation bought shares knowing
the stock was mispriced, reasoning this was “at odds with Plaintiffs’ theory of reliance”). 22
Many Named Plaintiffs purchased the Affected Stocks on January 27, 2021, for reasons
completely divorced from the fundamental value of the underlying companies, including because
they wanted to profit from short squeezes or thought the stocks were mispriced due to the social
media craze. (See, e.g., Ex. 8, Huacuja 44:18-19; Ex. 5, Clarke 40:18-20.) These class members
did not rely on the integrity of the market price when they purchased, and it blinks at reality to
suggest that they began to assume the market had suddenly become efficient the following day
and relied on it. (See, e.g., Ex. 23, Dep. Ex. 81 (Rivas continued to hold her share of GME
during the Class Period when she posted: “The squeeze hasn’t squoze [sic] yet.”); Ex. 11, Ng
71:17-72:3, 83:11-20 (Ng continued holding GME in the hopes of a “gamma squeeze”).)
22
The Eighth Circuit denied leave to appeal the denial of class certification. On remand, the
court transferred the case to the Central District of California, where the district court likewise
denied class certification on the grounds that “the market for Genesis stock was not efficient,”
and plaintiffs could not create any exception thereto. GenesisIntermedia, 2007 WL 1953475, at
*6. The Ninth Circuit affirmed. Desai, 573 F.3d at 931.
24
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 32 of 45
C. The Affiliated Ute Presumption Does Not Apply.
Plaintiffs’ final argument to satisfy predominance is that they can rely upon the
presumption of reliance under Affiliated Ute. (Mot. at 11.) But this presumption does not apply
to market manipulation claims. See Desai, 573 F.3d at 940 (plaintiffs alleging market
manipulation “cannot avail themselves of the Affiliated Ute presumption” permitted in omission
cases). That is because “manipulative conduct has always been distinct from actionable
omissions”: omission claims “stem from the failure to disclose accurate information relating to
the value of a security where one has a duty to disclose it,” whereas manipulation involves
“activities designed to affect the price of a security artificially by simulating market activity that
does not reflect genuine investor demand.” Id. at 940-41. For this reason, “[i]f such
nondisclosure of a defendant’s fraud was an actionable omission, then every manipulative
conduct case would become an omissions case.” Id. at 941; see Rabin v. Nasdaq OMX PHLX
LLC, 712 F. App’x 188, 194 (3d Cir. 2017) (explaining that “if nondisclosure of
manipulation itself justified a presumption under Affiliated Ute,” it “would expand the reach of
the securities laws beyond their intended boundaries”).
Plaintiffs cite In re Barclays Liquidity Cross & High Frequency Trading Litigation, 390
F. Supp. 3d 432, 449 (S.D.N.Y. 2019), in which a district court permitted the use of the Affiliated
Ute presumption. (Mot. at 13.) That case does not apply because the manipulative scheme there
“involve[d] primarily omissions,” rather than misrepresentations. See Barclays, 390 F. Supp. 3d
at 448 & n.10 (discussing defendant stock exchanges’ failure to disclose information regarding
their co-location services and proprietary feeds in required SEC filings); City of Providence v.
BATS Glob. Mkts., Inc., 878 F.3d 36, 49-52 (2d Cir. 2017) (earlier decision in same case
establishing that it primarily involved omissions). Here, by contrast, Plaintiffs have alleged
misrepresentations (the Robinhood blog post and Mr. Tenev’s CNBC interview) to support their
manipulation claims, and the Eleventh Circuit has held the Affiliated Ute presumption does not
apply in this context. See, e.g., Cavalier Carpets, Inc. v. Caylor, 746 F.2d 749, 756 (11th Cir.
1984) (“This Circuit has recognized the limited reach of the [Affiliated] Ute presumption,
applying it only in primarily omission cases in which a duty to disclose existed.”). 23
23
Plaintiffs’ reliance on Spicer v. Chicago Bd. Options Exch., Inc.—which did not even
discuss Affiliated Ute—is misplaced. No. 88-cv-2139, 1990 WL 16983 (N.D. Ill. Jan. 31, 1990).
In Spicer, the claims were “based on alleged omissions” by the Chicago Board Options
25
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 33 of 45
Although Plaintiffs try to recast the alleged deceptive conduct here as involving
omissions so as to try to fit under Affiliated Ute (see Mot. at 12), they cannot get around the fact
that their central allegations concern Robinhood’s purported misrepresentation that its
restrictions were attributed “solely to ‘market volatility’” (id. at 11-12 (Robinhood “announced
in a blog post that it had placed the Affected Stocks into PCO, ‘in light of recent market
volatility’”)). Indeed, in concluding that Plaintiffs plausibly pleaded manipulative conduct
sufficient to withstand a motion to dismiss, the Court focused on the alleged misstatement that
“Robinhood outright denied having a liquidity issue and blamed market volatility exclusively.”
(MTD Order at 45.) As such, the alleged manipulation here depends primarily on
misrepresentations, and the Affiliated Ute presumption does not apply. 24
In any event, like all presumptions, the Affiliated Ute presumption is rebuttable, and
Robinhood has done so with overwhelming evidence that “Plaintiffs did not rely on the
omissions at issue in making their investment decisions.” Barclays, 390 F. Supp. 3d at 449
(internal quotations omitted). As described above, most of the Named Plaintiffs did not recall
any reason Robinhood provided for its restrictions. And Lead Plaintiff Blue Laine-Beveridge
testified he did not believe the reasons Robinhood gave affected the price. (See Statement of
Facts IV.C.) As such, they could not have relied on the alleged omission—that Robinhood
imposed the restrictions because of liquidity issues—in making their investment decisions.
For the foregoing reasons, Plaintiffs are not entitled to a classwide presumption of
reliance on any of their legal theories, and class certification must be denied.
II. PLAINTIFFS WILL BE FORCED TO LITIGATE DAMAGES ON AN
INDIVIDUALIZED BASIS, PRECLUDING CERTIFICATION UNDER RULE
23(b)(3).
The Court should deny class certification for the independent reason that Plaintiffs have
not shown that they will be able to offer a damages model that can withstand scrutiny under
Exchange (“CBOE”). Id. at *14. Moreover, the class in Spicer was limited to individuals who
traded on the CBOE. Id. at *16. Here, the majority of putative class members did not trade on
Robinhood, making it even more farfetched to presume that they relied on any purported
omission regarding the reasons for restrictions implemented on that platform.
24
Plaintiffs assert that Affiliated Ute applies because they should be able to assume that a
market is free from manipulation. (Mot. at 12.) However, such an approach would “very nearly
render the reliance element of private 10(b) claims a nullity.” Rabin v. Nasdaq OMX PHLX
LLC, 182 F. Supp. 3d 220, 246 (E.D. Pa. 2016), aff’d, 712 F. App’x 188 (3d Cir. 2017).
26
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 34 of 45
Comcast. To satisfy Rule 23(b)(3)’s predominance requirement, Plaintiffs must establish that
their damages are measurable on a classwide basis using a common methodology that is
consistent with their liability theory and measures only damages attributable to that theory.
Comcast, 569 U.S. at 35. “If the model does not even attempt to do that, it cannot possibly
establish that damages are susceptible of measurement across the entire class for purposes of
Rule 23(b)(3).” Id. Further, the proposed methodology cannot be based on “speculative”
inferences because “[s]uch a proposition would reduce Rule 23(b)(3)’s predominance
requirement to a nullity.” Id. at 35-36.
As courts in this Circuit have explained, Comcast “instructed lower courts to conduct a
‘rigorous analysis’ to determine whether the purported damages model fits the liability case.”
Randolph v. J.M. Smucker Co., 303 F.R.D. 679, 696-97 (S.D. Fla. 2014); see Krukever v. TD
Ameritrade, Futures & Forex LLC, 328 F.R.D. 649, 662 (S.D. Fla. 2018) (denying class
certification when it was “simply impossible” to “[c]alculat[e] damages using ‘readily available’
data and a plug-and-chug formula, as Plaintiffs suggest[ed] . . . without conducting complex and
fact specific inquiries to determine the proper and accurate data to plug into the
formula”). Without such an analysis, a plaintiff’s “bald, unsupported assertion that [their]
method will work” is insufficient. Randolph, 303 F.R.D. at 698.
Plaintiffs’ damages theory is founded on the premise that the “closing price on January
27” is “the fair value of what [class members] would have received” absent Robinhood’s
restrictions, and that consequently “[d]amages can be computed as the difference between the
closing price on January 27 and the sales price class members received during the Class Period.”
(Mot. at 22, 3-4.) There is no evidentiary support for that premise. In the week leading up to the
Class Period, the Affected Stocks experienced price increases of up to 1,591%. (Ex. 20,
Grenadier Report, fig. 2.) As explained by Prof. Grenadier and Prof. Fischel, the Affected
Companies’ price movements during that week could not be explained by value-relevant news.
(Id. App’x E; Ex. 18, Fischel Report App’x D.) The closing price on January 27 for the Affected
Stocks was therefore completely untethered from any “fair value”—a fact to which Named
Plaintiffs testified at deposition (see, e.g., Ex. 5, Clarke 40:18-20 (testifying that the price of
GME at this time did not reflect the company’s fundamentals))—and to which some of the
companies issuing the Affected Stocks agreed (see, e.g., Ex. 42, BlackBerry Press Release,
Jan. 25, 2021; Ex. 57, Nokia Press Release, Jan. 27, 2023).
27
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 35 of 45
Plaintiffs attempt to rescue their damages methodology by arguing that “price is the best
proxy for value.” (Mot. at 25.) But the sources they cite make clear that price is a proxy for
value only in an efficient market. As Plaintiffs quote, “if markets are informationally
efficient, . . . professional active managers should do no better at picking stock portfolios than
monkeys with darts” (Mot. at 25 (quoting Ex. 68, Cochrane, Eugene Fama, Efficient Markets,
and the Nobel Prize) (emphasis added)), because prices in an efficient market are a good
indicator of a stock’s fair value. (See also Plf. Ex. 34, Fischel, Efficient Capital Markets 914-15
(tying the use of price as a proxy for value to the existence of efficiency).)
As discussed, Robinhood has provided ample evidence that the markets for the Affected
Stocks were not efficient on January 27, 2021. Plaintiffs, by contrast, have proffered no
evidence that the closing prices on January 27, 2021, were the result of efficient markets. As
explained above and in Robinhood’s Daubert motion, Dr. Werner applies the wrong efficiency
standard and tests for that standard using two unreliable analyses that neither he nor anyone in
his field has used before. (Daubert Mot. at 10-14, 16-17.) Moreover, his full-year analysis is so
overbroad as to provide no information on the question at hand for Comcast purposes—the
efficiency of the market on the last day of that year, which Dr. Werner excluded from his
regression model because of “potentially abnormal returns” on January 27. (See id. at 9.) His
opinions are inadmissible under Daubert. (Id. at 7-10.) Because Plaintiffs have provided no
admissible—much less convincing—evidence that the markets for the Affected Stocks were
efficient on January 27, 2021, they have failed to support the premise of their supposed
classwide damages methodology, and so “have not satisfied their burden to show that this
method of calculating damages for this class is reliable or an appropriate fit to the theory of
injury here.” Cardenas v. Toyota Motor Corp., No. 18-CV-22798, 2021 WL 6926418, at *21
(S.D. Fla. Aug. 12, 2021). 25
Moreover, Plaintiffs have not offered a damages model that could show but-for prices
(where the Affected Stocks would have traded absent Robinhood’s restrictions) during the Class
Period because they have not even attempted to show efficiency during the Class Period.
(Ex. 15, Werner 31:11-17.) In an inefficient market, stock-price movement may have no relation
25
While Plaintiffs complain that Robinhood “provide[s] no viable alternative” of measuring
damages (Mot. at 25), it is their burden, not Robinhood’s. See, e.g., Ulysse v. Waste Mgmt. Inc.,
No. 11-CV-80723, 2013 WL 11327137, at *3 (S.D. Fla. Sept. 13, 2013).
28
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 36 of 45
to new information. (See Ex. 20, Grenadier Report ¶¶ 167-168; Ex. 18, Fischel Report ¶ 38.)
And in an ongoing short squeeze, it is inevitable that prices will fall at some point. (Ex. 18,
Fischel Report ¶¶ 27-28.) Plaintiffs’ assertion that “[a]t minimum, the closing price on January
27 is what class members would have received” during the Class Period lacks any foundation
because there is no reasonable or reliable means to measure what might have happened, and
when the bubble would inevitably have burst, in their “but for” world. (Mot. at 22.) Without an
efficient market, there can be no “reasonably certain proof of damages” (see Ex. 56, Ferrillo et
al. 122-23), and Plaintiffs cannot proffer a classwide damages methodology.
III. BECAUSE PLAINTIFFS LACK STANDING OR ARE ATYPICAL AND
SUBJECT TO UNIQUE DEFENSES, THEY CANNOT SATISFY RULE 23(a)(3).
Class certification should also be denied for three further independent reasons because
the claims and defenses are not typical as required under Rule 23(a)(3).
A. A Class Cannot Be Certified with Laine-Beveridge as Lead Plaintiff.
To assert claims on behalf of a class, a proposed representative must have standing to
assert individual claims. O’Shea v. Littleton, 414 U.S. 488, 493-94 (1974); see also Cuban Am.
Bar Ass’n, Inc. v. Christopher, 43 F.3d 1412, 1423 (11th Cir. 1995). Mr. Laine-Beveridge lacks
standing to assert securities claims against Robinhood.
The Court appointed Mr. Laine-Beveridge as lead plaintiff based on his claimed losses in
NOK. His original PSLRA certification, filed with his motion for appointment as lead plaintiff,
listed AMC and NOK trades. (Dkt. No. 366-3 at 2.) In ruling on the lead plaintiff motion, this
Court noted that Mr. Laine-Beveridge lacked standing to pursue claims related to his AMC
transactions because he profited on them. (Dkt. No. 420 at 9.) The Court nevertheless appointed
Mr. Laine-Beveridge as lead plaintiff on the basis that he claimed to have suffered the greatest
net loss among the applicants to be lead plaintiff due to his transactions in NOK. (Id. at 5.)
After the Court’s appointment Order, however, Plaintiffs’ counsel amended the class
definition to include only individuals who sold the Affected Stocks at a loss “between January 28
to February 4, 2021.” (See Dkt. No. 527 at 1.) 26 This amendment meant Mr. Laine-Beveridge
was no longer a class member with respect to his transactions in NOK, as all of his NOK sales
26
In the lead plaintiff motion, The Rosen Law Firm defined the proposed class as persons
“who sold any of the Affected Securities . . . via the Robinhood trading platform on or after
January 28, 2021 as a result of Robinhood’s restrictions.” (Dkt. No. 366-0 at 1.)
29
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 37 of 45
occurred on or after February 22, 2021. (Dkt. No. 366-3 at 2.) As a result, Plaintiffs’ counsel
produced a second PSLRA certification from Mr. Laine-Beveridge dated April 14, 2023, days
before his deposition, which no longer included any transactions in NOK, and also revised his
reported transactions in AMC. (See Ex. 33, P00002834.) When asked at his deposition,
Mr. Laine-Beveridge could not confirm which certification was accurate. (See Ex. 9, Laine-
Beveridge 164:4-165:21.) He was able to confirm however, that under the amended class
definition he is not a member of the proposed class as it relates to NOK because “one of the
issues is that I didn’t lose money on Nokia during the Class Period.” (Id. 135:10-24.)
Thus, the basis for the Court’s appointment of Mr. Laine-Beveridge as lead plaintiff—his
NOK transactions—has evaporated. Nor can he serve as lead plaintiff based on his AMC
transactions, from which he profited. (Dkt. No. 420 at 9.) While Plaintiffs’ counsel may now
contend that Mr. Laine-Beveridge lost money if the Court examines only his AMC sales during
the Class Period, any such loss is relatively small. (Compare Dkt. No. 366-3 (reporting overall
AMC gain of $12,443.51) with Dkt. No. 559-6 (reporting loss of $2,960.17 by omitting sales on
June 15, 2021).) Other lead plaintiff applicants claimed greater losses in the Affected Stocks.
(See Dkt. No. 365 at 8-9 (competing movants alleging total losses of $16,239.70).) Before
certifying a class, the Court would therefore need to reopen the lead plaintiff process. See, e.g.,
In re Allergan PLC Sec. Litig., No. 18-cv-12089, 2021 WL 4077942, at *1, *5 (S.D.N.Y. Sept. 8,
2021) (appointing new lead plaintiff and new lead counsel after having denied class certification
on the basis of original lead plaintiff’s inadequacy).
Moreover, even if, contrary to the Court’s prior ruling, Mr. Laine-Beveridge had standing
due to his AMC transactions during the Class Period, he would nevertheless be an atypical class
representative because his overall profit on his AMC transactions subjects him to unique
defenses. Rule 23(a)(3) precludes class certification where a putative class representative is
subject to unique defenses that threaten to become the focus of the litigation. 27 See City Pension
Fund for Firefighters & Police Officers in Miami Beach v. Aracruz Cellulose S.A., No. 08-cv-
23317, 2009 WL 10664427, at *5 (S.D. Fla. Aug. 7, 2009). That an investor has “suffer[ed] no
27
Because the typicality and adequacy analyses “tend to overlap,” many of the arguments
articulated regarding typicality apply with equal force with respect to adequacy. Appleyard v.
Wallace, 754 F.2d 955, 958 (11th Cir. 1985).
30
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 38 of 45
net losses” is one such defense. 28 Regions, 762 F.3d at 1259 (citing In re Comdisco Sec.
Litig., 150 F. Supp. 2d 943, 945-46 (N.D. Ill. 2001)).
B. Named Plaintiffs Did Not Rely on the Integrity of the Market.
Where a putative class representative’s reliance on the integrity of the market may be
challenged, that also renders them atypical. There is substantial evidence that Named Plaintiffs
did not rely on the integrity of the market. First, Named Plaintiffs have conceded facts showing
that they did not rely on the integrity of the market when they purchased the Affected Stocks.
Second, the Court may infer from Named Plaintiffs’ trading strategies that they did not rely on an
assumption of market efficiency. A class cannot be certified with these Named Plaintiffs.
Plaintiffs alleging market manipulation “may be subject to unique defenses regarding
their reliance on the integrity of the market” when they traded “in reliance on [their]
understanding that the market did not accurately price the stock at the time,” as this directly
“calls into question their suitability as class representatives.” GenesisIntermedia, 232 F.R.D. at
329; see Kirkpatrick, 827 F.2d at 723 (noting that “district courts have denied class certification
for fraud-on-the-market claims where evidence indicates that the named plaintiffs may in fact
have relied on factors other than the market’s integrity”). Here, as explained in Statement of
Facts IV.C, the Named Plaintiffs admitted they knew about brokerage trading restrictions at the
time they sold their shares of the Affected Stocks during the Class Period. Thus, Plaintiffs
willingly traded “in reliance on [their] understanding that the market did not accurately price the
stock at the time.” GenesisIntermedia, 232 F.R.D. at 329.
Nor can Plaintiffs claim they relied on Robinhood’s statements regarding the reasons for
the restriction: few of the Named Plaintiffs even recalled receiving or viewing any statement
regarding why Robinhood imposed the restrictions. (See Statement of Facts IV.C.) One of the
few who did, Mr. Laine-Beveridge, testified that he did not think Robinhood’s reasons had
anything to do with the stock-price decline. (Ex. 9, Laine-Beveridge at 169:14-20.) Because
Named Plaintiffs did not rely on Robinhood’s statements about the reasons for the restrictions in
deciding to sell their shares, they are atypical of any class that could pursue viable claims. See
28
Two other Named Plaintiffs—Cash and Poirier—profited on their sales of Affected Stocks
during the Class Period. See supra at 12-13. Those Named Plaintiffs are therefore also atypical.
See Katz v. Comdisco, Inc., 117 F.R.D. 403, 407-08 (N.D. Ill. 1987) (holding atypical claims of
class representative who profited on transactions during class period).
31
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 39 of 45
Underwood v. Lampert, No. 02-cv-21154, 2005 WL 8155010, at *4 (S.D. Fla. Sept. 9, 2005)
(plaintiff atypical when he “did not believe that the market was defrauded during the class
period,” as this “strike[s] at the core of the ‘fraud on the market’ theory and threaten[s] the
common claim of the class”).
Unusual trading strategies and habits separately indicate that a plaintiff will “face[] []
unique defenses concerning their lack of reliance on . . . the integrity of the market.” Landry v.
Price Waterhouse Chartered Accountants, 123 F.R.D. 474, 475-76 (S.D.N.Y. 1989). Plaintiffs
argue that Named Plaintiffs’ investment strategies and reasons for their trades in the Affected
Stocks are irrelevant. (See Mot. at 9.) 29 This is not so. See, e.g., Luczak v. Nat’l Beverage
Corp., 548 F. Supp. 3d 1256, 1267-68 (S.D. Fla. 2021) (“Plaintiff’s haphazard and highly
unusual trading practices—which are anything but typical—give rise to unique defenses . . . .”);
Bang v. Acura Pharm. Inc., No. 10-cv-5757, 2011 WL 91099, at *6 (N.D. Ill. Jan. 11, 2011)
(“unusually high-volume and high frequency trading can raise challenges to typicality”).
In Luczak, the court concluded the plaintiff’s trading practices rendered him atypical
when he testified at deposition that “he [did] not consider himself a sophisticated investor,” “he
[did] not consider himself a long-term investor and [did] not recall any instance in which he held
a stock for more than one year,” he “did not[] look at or read SEC filings of [defendant] or any
other company in which he has invested,” and “he b[ought] and s[old] hundreds of thousands of
dollars’ worth” of stock that he held “for periods as short as a single day, and d[id] not recall
why he chose to buy and sell so quickly.” 548 F. Supp. 3d at 1267-68. Likewise, a plaintiff’s
strategy to focus on “technical price movements rather than price” may render that plaintiff
atypical, as this “rebut[s] the reliance presumption,” “even under a fraud-on-the-market theory.”
In re Safeguard Scientifics, 216 F.R.D. 577, 582 (E.D. Pa. 2003). As summarized below, Named
Plaintiffs exhibit these same unusual trading practices, subjecting them to unique defenses:
• Lack of Investing Experience and Research: Ms. Rivas and Ms. Bernard testified that they
did not have any real investment strategy or investing experience. (Ex. 14, Rivas 43:16-20,
120:18-20; Ex. 1, Bernard 102:20-103:18, 110:22-111:17.) Further, five of the Named
Plaintiffs admitted that they did not research the financials or business metrics of the
Affected Stocks in advance of trading. (See Ex. 8, Huacuja 54:4-17; Ex. 12, Nguyen 33:21-
36:9; Ex. 14, Rivas 50:11-20; Ex. 11, Ng 54:7-10; Ex. 9, Laine-Beveridge 57-59.) Two
Named Plaintiffs claimed they do not recall why they decided to trade. (See Ex. 12, Nguyen
29
Plaintiffs’ conclusory assertion that the supposed irrelevance of investment strategies and
reasons for trading “is particularly true for a seller class” (Mot. at 9) is entirely without support.
32
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 40 of 45
83:21-24, 107:4-16; Ex. 1, Bernard 149:5-151:13.) Taken together, the lack of research,
investing experience and real trading strategy across the Named Plaintiffs renders them
atypical. See, e.g., Luczak, 548 F. Supp. 3d at 1267-68.
• Trading Based on Price Movements and Momentum: Three Named Plaintiffs testified
that they traded the Affected Stocks based on momentum. (Ex. 5, Clarke 73:15-74:9; Ex. 12,
Nguyen 73:13-20; Ex. 9, Laine-Beveridge 107:25-108:5.) Mr. Harbison also testified that he
generally trades based off momentum, selling stocks when he sees a trendline declining and
buying when he sees a trendline increasing. (Ex. 7, Harbison 34:15-35:25.) Accordingly,
these Named Plaintiffs are atypical of the putative class. See, e.g., Safeguard Scientifics, 216
F.R.D. at 582 (plaintiff atypical when he traded based on “technical price movements”).
• Buying and Selling on the Same Day: Four Named Plaintiffs each bought and sold shares
of the Affected Stocks on the same day during the Class Period. (See Ex. 64, P00002781
(Ms. Bernard bought and sold shares of AMC on February 3); Ex. 65, P00002863
(Mr. Bohórquez bought and sold shares of AMC on January 28, January 29 and February 1
and also bought and sold shares of EXPR on January 28); Ex. 62, Jan. 9, 2023 Poirier
Certification (Mr. Poirier bought and sold shares of BB on January 28); Ex. 61, Jan. 11, 2023
Ng Certification (Mr. Ng bought and sold shares of GME on February 4.) This renders these
Named Plaintiffs atypical. See Applestein v. Medivation, Inc., No. 10-cv-998, 2010 WL
3749406, at *3 (N.D. Cal. Sept. 20, 2010) (plaintiff atypical when he “bought and sold [the
relevant] stock on the same day” during the class period and “his trading ranged from a
single trade to as many as 44 trades in a single day”).
• Investing Based on Recommendations: Mr. Ng testified that he made GME trading
decisions based on the advice of social media influencer Keith Gill, buying GME “[b]ecause
[he] saw a post on Reddit [by Gill] that interested him” and that he continued to hold because
“[i]f DFV [wa]s holding, . . . I was holding.” (Ex. 11, Ng 43:12-21, 83:11-20.) 30 Courts
have found plaintiffs like Mr. Ng atypical when they made investment decisions based on
“recommendations from friends and associates [and] not on the statements of [the defendant]
or the integrity of the market.” See, e.g., Landry, 123 F.R.D. at 476.
C. Named Plaintiffs Lack Standing To Represent Class Members Who Traded
in BBBY, KOSS, TR or TRVG.
Named Plaintiffs lack standing to prosecute claims for class members who traded in four
of the nine Affected Stocks—BBBY, KOSS, TR and TRVG—because none of the Named
Plaintiffs suffered losses from sales of those stocks, or traded in them at all. See Teamsters
Local 445 Freight Div. Pension Fund v. Bombardier Inc., No. 05 Civ. 1898, 2005 WL 2148919
at *4 (S.D.N.Y. Sept. 6, 2005) (“A named plaintiff in a class action that purchased securities
30
Lead Plaintiff Laine-Beveridge has disclaimed the wisdom of this trading strategy. In his
opinion, any class members who bought shares of the Affected Stocks based on social media
were following a different investment strategy. (Ex. 9, Laine-Beveridge 100:23-104:16.)
33
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 41 of 45
from one issuer does not have standing to bring claims on behalf of purchasers of securities from
a different issuer.”); Luczak, 548 F. Supp. 3d at 1262-63, 1265, 1268 (same). Accordingly, to the
extent the Court certifies a class, it cannot include these Affected Stocks. 31
The Court appointed Mr. Laine-Beveridge as lead plaintiff even though he traded in only
two of the nine Affected Stocks. (Dkt. No. 420 at 9.) In doing so, the Court expressly noted
that, in this situation, “the proper solution is to simply add additional named plaintiffs.” (Id.)
Plaintiffs failed to follow the Court’s direction, and therefore these Named Plaintiffs lack
standing to bring claims relating to BBBY, KOSS, TR and TRVG.
The cases cited by Plaintiffs (Mot. at 8) are inapposite. In In re Dreyfus Aggressive
Growth Mutual Fund Litigation, No. 98-cv-4318, 2000 WL 1357509, at *10 (S.D.N.Y Sept. 20,
2000), the court certified a class where representatives had invested in all but one of the
defendant’s mutual funds at issue. Here, however, Plaintiffs seek to represent a class of investors
in nine Affected Stocks issued by companies other than Robinhood, all of which are differently
situated from one another. Dreyfus does not stand for the proposition that Plaintiffs can group all
nine Affected Stocks as if they are a nearly fungible set of nine securities from a single issuer
and simply conclude that “by proving their claims” as to GME that they will “necessarily prove
the claims” as to KOSS, an entirely different stock. Id. at *5. And in Krukever, 328 F.R.D. at
655, the plaintiffs held options on “S&P Emini futures contracts,” known as “ES options.”
Importantly, these 888 types of ES options were not 888 different securities, but rather 888
different put option contracts on futures of one underlying securities basket (the S&P 500). 32
IV. PLAINTIFFS CANNOT SATISFY RULE 23(a)(4) BECAUSE THEY WILL NOT
ADEQUATELY PROSECUTE THE ACTION AND SUBSTANTIAL CONFLICTS
OF INTEREST EXIST.
The adequacy prong of Rule 23(a)(4) requires that named plaintiffs have sufficient
“participation in and awareness of the litigation.” Kirkpatrick, 827 F.2d at 727. A class may not
be maintained where named plaintiffs “have abdicated their role in the case beyond that of
furnishing their names as plaintiffs.” Id. (quoting Helfand v. Cenco, 80 F.R.D. 1, 7-8 (N.D. Ill.
31
As noted in Part I.A, a class cannot be certified as to KOSS or TR for the independent
reason that Plaintiffs do not even contend that those markets were efficient. (See Mot. at 18.)
32
Further, in Krukever, the plaintiffs brought a best execution claim for the alleged
liquidation of options at a poor price. Unlike a best-execution claim, a securities fraud claim
turns on price movements for each security during the class period, which will vary by security.
34
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 42 of 45
1977)). Adequacy is also defeated when interests are actually or potentially antagonistic to, or in
conflict with, the interests and objectives of other class members. In re Photochromic Lens
Antitrust Litig., No. 8:10-cv-984, 2014 WL 1338605, at *14 (M.D. Fla. Apr. 3, 2014). The
“existence of both economic winners and economic losers within the potential class” can
“create[] a fundamental conflict precluding adequate representation of the class.” Id.
Named Plaintiffs admit they have played virtually no role in directing the litigation. Lead
Plaintiff Laine-Beveridge testified that he did not review the motion to dismiss briefing or the
Court’s opinion on that motion. (Ex. 9, Laine-Beveridge 25:12-27:10.) Nor had he
communicated with Plaintiffs’ counsel about the class certification motion (which Plaintiffs’
counsel filed two days after the deposition) or reviewed the expert reports (which had been
exchanged previously). (Id. 30:5-31:9.) This is inadequate as a matter of law. See Welling v.
Alexy, 155 F.R.D. 654, 659 (N.D. Cal. 1994) (proposed representative who “ceded control to his
lawyers” inadequate).
Other Named Plaintiffs showed a complete lack of interest in the litigation. Mr. Gurney,
for example, struggled to provide even basic knowledge about this case. When asked to describe
the putative class he seeks to represent, Mr. Gurney testified that the class is comprised of
“human beings who have a complaint.” (Ex. 6, Gurney 128:16-130:4.) Nor could he confirm
whether he is suing on his AMC sales (on which he earned a profit). (Id. 67:23-69:2, 97:22-
98:18.) In flagrant disregard of his obligation to dedicate attention to this case, Mr. Gurney sat
for his deposition from the driver’s seat of his car—while driving. (Id. 6:20-7:8.)
Named Plaintiffs’ trades in the Affected Stocks during the Class Period also establish
substantial conflicts of interest. Mr. Cash sues on his sale of GME on January 28, the same day
that Mr. Ng bought shares of GME. Further, despite attempting to represent a putative class of
investors that sold shares of the Affected Stocks during the Class Period, six of the Named
Plaintiffs bought shares of the Affected Stocks during this time. (See Statement of Facts IV.C.)
These variations establish intraclass conflicts. See Montgomery v. New Piper Aircraft, Inc., 209
F.R.D. 221, 226-27 (S.D. Fla. 2002) (recognizing intraclass conflict between buyers and sellers).
CONCLUSION
For the foregoing reasons, Robinhood respectfully requests that the Court deny Plaintiffs’
motion for class certification.
35
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 43 of 45
REQUEST FOR HEARING
Pursuant to Local Rule 7.1(b)(2), Robinhood requests an evidentiary hearing due to the
complexity of the legal questions raised by Plaintiffs’ motion for class certification. See
Local Rule 7.1(b)(2) (“The Court in its discretion may grant or deny a hearing as requested, upon
consideration of both the request and any response thereto by an opposing party.”) “Although a
hearing is not required prior to granting or denying a motion for class certification . . . such a
procedure may, in an appropriate case, aid the court in deciding the issue.” Hudson v. Delta Air
Lines, Inc., 90 F.3d 451, 458 n.15 (11th Cir. 1996) (citing Grayson v. K Mart Corp., 79 F.3d
1086, 1099 (11th Cir. 1996)); see also In re Domestic Air Transp. Antitrust Litig., 137 F.R.D.
677, 700 (N.D. Ga. 1991) (court held “limited evidentiary hearing” regarding “appropriateness of
class certification”). A hearing on class certification in this case would assist the Court in
assessing the numerous legal theories concerning reliance set forth by Plaintiffs. In particular, an
evidentiary hearing with live expert testimony concerning market efficiency would aid the Court
in determining whether Plaintiffs may rely on the presumption of reliance established by Basic.
Courts routinely grant class certification hearings to address these issues. See, e.g., Krogman v.
Sterritt, 202 F.R.D. 467, 470, 478 (N.D. Tex. 2001) (rejecting Basic presumption based on
market inefficiency after class certification hearing).
If the Court also grants a hearing on Robinhood’s Daubert motion, Robinhood requests
the hearings be held in conjunction. The parties’ arguments with respect to the two motions are
closely intertwined. Accordingly, a joint hearing will provide further clarification on these
issues and promote judicial efficiency.
36
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 44 of 45
Dated: June 7, 2023 /s/ Samuel A. Danon
HUNTON ANDREWS KURTH LLP
Samuel A. Danon (FBN 892671)
Tom K. Schulte (FBN 1025692)
María Castellanos Alvarado (FBN 116545)
333 S.E. 2 Avenue, Suite 2400
Miami, FL 33131
Telephone: (305) 810-2500
Facsimile: (305) 810-2460
sdanon@huntonak.com
tschulte@huntonak.com
mcastellanos@hunton.com
CRAVATH, SWAINE & MOORE LLP
Antony L. Ryan
Kevin J. Orsini
Brittany L. Sukiennik
825 Eighth Avenue
New York, NY 10019
Telephone: (212) 474-1000
Facsimile: (212) 474-3700
aryan@cravath.com
korsini@cravath.com
bsukiennik@cravath.com
Counsel for Defendants Robinhood Markets,
Inc., Robinhood Financial LLC and
Robinhood Securities, LLC
37
Case 1:21-md-02989-CMA Document 567 Entered on FLSD Docket 06/07/2023 Page 45 of 45
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on June 7, 2023, I electronically filed the foregoing document
with the Clerk of the Court using CM/ECF. I further certify that the foregoing document is being
served this day on all counsel of record via transmission of Notices of Electronic Filing
generated by CM/ECF or in some other authorized manner for those counsel or parties who are
not authorized to receive Notices of Electronic Filing.
Dated: June 7, 2023 /s/ Samuel A. Danon
Samuel A. Danon (FBN 892671)
38
File and source
- File
- gov.uscourts.flsd.590042.567.0.pdf
- Size
- 595,489 bytes
- SHA-256
- bf58bb059f84f434b8433eafb4bdf8071f5a70f5815a03d10da4b2cc215e6dfb
- Original
- archive.org