Robinhood defeats investors' appeal over meme stock frenzy

Bed Bath & Beyond

10/08/2023 17:16

By Jonathan Stempel
       Aug 10 (Reuters) - Robinhood Markets  HOOD.O  on
Thursday defeated an appeal by investors over the stock trading
platform's decision to restrict purchases of 13 "meme stocks"
during a January 2021 frenzy that squeezed hedge funds.
    Customers who owned stocks such as AMC Entertainment
 AMC.N , the former Bed Bath & Beyond  BBBYQ.PK  and GameStop
 GME.N  claimed in the proposed class action that they lost
money because Robinhood stopped them from buying more as social
media-fueled trading drove prices skyward.
    Other holders of the stocks also said they were harmed,
because the restrictions eventually caused prices of their
stocks to fall.
    But in a 3-0 decision, the 11th U.S. Circuit Court of
Appeals in Atlanta said Robinhood's standard customer agreement
specifically authorized the restrictions, and did not suggest
that Robinhood would accept all trade orders.
    The court also dismissed claims that Robinhood was negligent
in failing to keep investors from losing money, or failed to
ensure that its "mission critical systems" would work properly.
    "When Robinhood restricted its customers' ability to buy
meme stocks, it took a sizable - and perhaps justifiable - hit
in the court of public opinion," Circuit Judge Britt Grant
wrote. "But in this court, Robinhood is only accountable for
specific legal duties."
    Lawyers for the plaintiffs did not immediately respond to
requests for comment. Robinhood and its lawyers did not
immediately respond to similar requests.     
    Thursday's decision upheld a November 2021 ruling by Chief
Judge Cecilia Altonaga of the Miami federal court.
    The meme stock frenzy has been fueled in part by investors
using online forums such as Twitter and the subreddit WallStreet
Bets.
    It led to a "short squeeze" that caused big losses for hedge
funds betting stock prices would fall, and what Robinhood called
"outsized regulatory collateral calls" for the Menlo Park,
California-based company and other brokers.
    Robinhood is also being sued by investors who sold nine meme
stocks at a loss in late January and early February 2021.
    Shares of Robinhood were up 3 cents at $10.83 at midday on
Thursday. 
    The case is In re January 2021 Short Squeeze Trading
Litigation, 11th U.S. Circuit Court of Appeals, No. 22-10669.
    

 (Reporting by Jonathan Stempel in New York
Editing by Matthew Lewis)
 ((jon.stempel@thomsonreuters.com; +1 646 223 6317; Reuters
Messaging: jon.stempel.thomsonreuters.com@reuters.net))