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Robinhood, TD America Trade Restriction Suits Sent to Florida

April 2, 2021, 8:11 PM

Traders who accuse Robinhood, TD Ameritrade, and other brokers of improperly restricting their ability to purchase “meme stocks” will litigate their cases in the Southern District of Florida after the U.S. Judicial Panel on Multidistrict Litigation centralized and sent their suits there.

The cases stem from restrictions imposed following “frenetic trading” in stocks such as GameStop Corp., AMC Entertainment Holdings Inc., and Tootsie Roll Industries Inc., allegedly “spurred by members of a Reddit forum called ‘r/WallStreetBets.’”

A majority of plaintiffs and all of the responding defendants supported centralizing the 39 cases pending in 14 districts, the panel said. The U.S. District Court for the Southern District of Florida is an “appropriate transferee district” for the suits.

Robinhood Markets Inc., TD Ameritrade Inc., and E*Trade Financial Corp. are among the dozens of online brokerages and clearinghouses named as defendants.

The WallStreetBets traders purportedly realized that, as the value of the meme stocks increased, “several major hedge funds and institutional investors that had taken short positions on these securities would be exposed to potentially ruinous losses,” the panel’s transfer order said.

But the online brokerages the retail traders used began restricting the ability to purchase certain meme stocks in late January. This allegedly “created a one-way sell situation,” leading to price drops and losses for the retail traders while allowing larger investors to cover their short positions.

All of the litigation arises from those restrictions, and Robinhood is named as a defendant in all but five of the cases, the panel said. “These actions thus will entail common discovery of Robinhood, other broker defendants, and the various institutional investor and clearinghouse defendants.”

Ten of the cases are already pending in Florida, including four in the Southern District, the panel said. Some of the events allegedly took place in Florida, including Robinhood’s “decision to restrict trading on the meme stocks.”

Most of the arguments against centralization “stem from the differences in theories, claims, and defendants involved in this litigation,” the panel said.

But the transferee court “can employ any number of pretrial techniques—such as establishing claim-specific or defendant specific tracks and creating an attorney leadership structure that reflects the differences in the claims—to manage the differences that these actions may present.”

The panel assigned the cases to Judge Cecilia M. Altonaga.

One or more panel members are potential members of the would-be classes, the Thursday order said. They “renounced their participation in these classes” and participated in the panel’s decision.

The multidistrict case is In re Jan. 2021 Short Squeeze Trading Litig., J.P.M.L., No. 2989, transfer order filed 4/1/21.

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

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