Did Robinhood manipulate the markets in 2021? Judge says retail platform must prove otherwise

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A judge ruled Thursday that Robinhood Markets Inc. HOOD must answer accusations of retail investor market manipulation stemming from the January 2021 meme equities craze.

At the center of the controversy is Robinhood’s response to several volatile trading sessions last year in which stocks of memes including GameStop soared.

The judge ruled that the investors of AMC Entertainment Holdings Inc. CMA, GameStop Corp. EMG and several other actions may file a class action lawsuit alleging that the restrictions artificially increased the supply of stock.

Despite the preliminary nature of the decision and the fact that it does not address the merits of the lawsuit, a Robinhood representative told Bloomberg the company stands behind its actions.

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“As we have previously communicated, the events of the week of January 25, 2021 were an extraordinary, once-in-a-generation event that tested all market players,” said Cheryl CrumptonAssociate General Counsel of Litigation and Regulatory Enforcement at Robinhood.

Here’s a quick rundown of what happened: The clearinghouse that settles Robinhood’s customer transactions issued a $3.7 billion margin call to the company on January 28, 2021.

Robinhood was supposed to post $1 in collateral for every $1 traded on the platform – the issue arose when the margin call was issued and the company only had $700 million to post.

In the hours leading up to the margin call deadline, the company lobbied the clearing house for leniency and attempted to raise additional capital for the margin call.

After successfully completing both tasks, Robinhood immediately ceased trading volatile stocks such as GameStop for the day, reducing its own immediate risk but also triggering the investigation that resulted in this class action lawsuit.

Separately, Robinhood agreed to pay $9.9 million in cash to a class of proposed users who were suing the trading platform for persistent service failures, according to filings filed Monday in a California federal court.

The settlement would resolve claims by around 150,000 subscribers that they suffered harm following a series of outages in 2021.

Photo: Shutterstock

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