Robinhood and Citadel have secured dismissal of the third antitrust complaint related to the January 2021 short squeeze. Chief Judge Cecilia M. Altonaga of the Florida Southern District Court has axed the complaint.

Let’s recall that this putative class action is brought on behalf of individual investors who suffered losses as a result of Robinhood’s response to a “short squeeze” — a situation in which stocks or other assets rise sharply in value, distressing short positions. This short squeeze occurred in late January 2021, as the Retail Investors purchased the Relevant Securities en masse over a short period of time, exposing those with short positions in the Relevant Securities — such as Citadel Securities — to large potential losses.

According to the traders Citadel Securities pressured Robinhood to restrict trading on its platform, which “artificially constricted the price appreciation of the Relevant Securities,” in violation of the Sherman Act, 15 U.S.C. § 1.

The Amended Complaint is Plaintiffs’ third attempt at pleading an antitrust conspiracy claim arising from the January 2021 short squeeze. The Court dismissed Plaintiffs’ Corrected Consolidated Class Action Complaint (the CCAC) last fall, giving Plaintiffs the opportunity to amend. They did so.

“What has changed with the latest pleading? Not much”, the Judge noted in her order issued this week.

The plaintiffs described a wide-ranging conspiracy purportedly orchestrated by a market maker and involving over a dozen defendants, including introducing brokerages, self-clearing brokerages, and clearinghouses. Plaintiffs alleged the market maker, Citadel Securities, pressured the other Defendants to halt trading in certain stocks that had undergone rapid and historic price increases due to a retail trading frenzy. According to Plaintiffs, Citadel Securities held significant short positions in the affected stocks, rendering it especially vulnerable to the retail-induced short squeeze.

The traders adequately pleaded parallel conduct among the defendants. But there were no additional factual allegations supporting a plausible inference of a conspiracy — except for references to a few vague and ambiguous emails that were exchanged between a brokerage, Robinhood, and its market maker, Citadel Securities. Last fall, the Court dismissed the CCAC in its entirety because a few questionable emails between two firms in an otherwise lawful business relationship were not enough to support a plausible inference of an unlawful conspiracy.

This third time around, Plaintiffs only allege collusion between Robinhood and Citadel Securities; they have dropped every other Defendant from the suit. While the traders profess to have bolstered their factual allegations as to Robinhood and Citadel Securities, the allegations of conspiracy are in substance the same and thus inadequate, the Judge said. In addition, Plaintiffs fail to plausibly allege an unreasonable restraint of trade because their garbled market theory does not conform to the alleged facts.

The Amended Complaint fails for two reasons. One, Plaintiffs fail to plausibly allege the existence of an agreement to restrict trade between Defendants. Sure, Citadel Securities would have economically benefited given its short positions. But Robinhood’s supposed incentive depends on the assumptions that it was motivated by its forthcoming IPO, that Citadel Securities threatened to cut off its relationship with Robinhood in exchange for the trading restrictions, and that Robinhood was unwilling to find another market maker.

The Court finds that the plaintiffs do not plausibly allege that Robinhood had such a motivation here, and even if they had done so, economic incentive is not in itself enough for the Court to infer that Defendants actually had an unlawful agreement to restrain trade.

The only additional evidence plausibly alleged by Plaintiffs consists of vague and ambiguous emails between two entities in an otherwise lawful business relationship that, while suspicious given their timing, do little to bolster the strength of Plaintiffs’ allegations. And juxtaposed with the compelling alternative explanation for the trading restrictions — the increased collateral requirements imposed by the NSCC in response to historic market volatility — Plaintiffs’ theory is speculative and implausible, the Court concludes.

Two, even if Plaintiffs did plausibly allege an agreement, they fail to plausibly allege an unreasonable restraint of trade. Plaintiffs allege a vertical restraint of trade, which must be evaluated under a rule of reason analysis and thus requires an accurate market definition — something they do not provide.

The Judge explains:

“Indeed, Plaintiffs ignore the reality of their suit: they allege that Defendants caused harm to the market for Relevant Securities, but they neglect to define that market. And because they do not define the market for Relevant Securities, their claim fails”.

The Court saw no reason to give Plaintiffs a fourth attempt to plead. The antitrust complaint against Robinhood and Citadel was thus dismissed for good.


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