About a month after the traders affected by the January 2021 short squeeze revived their antitrust complaint against Robinhood and Citadel, the defendants have responded to the market conspiracy claims.
On February 18, 2022, Robinhood Markets, Inc., Robinhood Financial LLC, Robinhood Securities, LLC and Citadel Securities LLC submitted their memorandum of law in support of their Motion to Dismiss the Amended Consolidated Class Action filed in the Antitrust Tranche pursuant to Federal Rule of Civil Procedure 12(b)(6).
Let’s recall that, according to the plaintiffs, this case involves a collusive agreement to restrict individual investors from exercising control over their trades and trading accounts. Robinhood and Citadel are accused of having hatched an anticompetitive scheme to restrict Retail Investors’ access to specific securities in the stock market, to suppress the prices of these securities, and to prevent the market from operating freely and fairly.
The complaint further alleges that Robinhood and Citadel entered into an illegal agreement to implement this scheme and committed a series of overt acts in furtherance of the conspiracy. The agreement was implemented, effective and caused its intended purposes, causing hundreds of millions in dollars in damages to the Plaintiffs and the Class they represent.
Now, Robinhood and Citadel seek to dismiss the amended complaint. The companies note that the plaintiffs first claimed that 35 defendants—including clearinghouses, market makers, institutional investors, clearing brokers and introducing brokers—executed a “large, overarching conspiracy to prevent the market from operating freely.” Plaintiffs then retreated to a slightly narrower claim of a horizontal conspiracy among various clearing and introducing brokers with alleged vertical agreements between at least some of those defendants and a single market-maker (Citadel Securities).
Then, the plaintiffs have abandoned any allegation that there was a horizontal agreement, and they have reduced their ever-shrinking conspiracy to just two entities: Robinhood and Citadel Securities.
The defendants argue that “this newly alleged mini-conspiracy is no more plausible than the various failed theories that Plaintiffs left on the cutting room floor or that the Court dismissed as implausible”.
The defendants claim that the plaintiffs have alleged no new facts to make their claim plausible. In its order dismissing the prior complaint, the Court held that the alleged communications between Robinhood and Citadel Securities—two entities with an ongoing business relationship—were insufficient to “nudge” Plaintiffs’ claims of an unlawful agreement “across the line from conceivable to plausible.”
Robinhood and Citadel say that the traders offer no new substantiated allegations or communications, nor do they allege any new substance with respect to the previously-alleged communications.
In dismissing the prior complaint, the Court found that there were “no allegations that Citadel Securities threatened or suggested it would cut off business relationships” if a defendant did not impose trading restrictions, and that Plaintiffs had otherwise failed to “explain why each Defendant would not simply use another market maker in such a scenario.”
The Court further found that the “mere fact that Citadel Securities is an important business partner . . . does not provide sufficient motive to conspire” and that Plaintiffs’ theory was “even less plausible given that the CCAC provides an ‘obvious alternative explanation’ for imposing trading restrictions”: the increased collateral requirements caused by market volatility.
These conclusions hold even more force with respect to the Amended Antitrust Complaint, the defendants say. The plaintiffs abandon any pretense of arguing that any of the brokers besides Robinhood that implemented restrictions substantially similar to those at issue here did so for any unlawful reason. Plaintiffs provide no additional factual allegations that Citadel Securities offered any inducement or made any threat to Robinhood that led Robinhood to put purchase limits in place.
The Plaintiffs do not explain why Robinhood would have complied with a hypothetical demand of that kind. Plaintiffs also do not explain why Citadel Securities would have purportedly conspired with Robinhood, but would not even attempt to conspire with other brokers, such as the now-dismissed Apex Clearing Corporation, which, as Plaintiffs alleged in their prior complaint, also had a substantial PFOF relationship with Citadel Securities.
In addition, the traders are said to have failed to explain why Robinhood would agree to a week-long conspiracy with shifting restrictions and share limitations without the involvement of any other retail broker-dealer, knowing that its customers could switch accounts during that time—as one of the plaintiffs admittedly did the same day Robinhood PCOed the Restricted Stocks.
Furthermore, Robinhood and Citadel says that this case remains nothing more than a “securities complaint in antitrust clothing,” and therefore is implicitly precluded by the federal securities laws. Congress and the expert regulatory agencies have established a comprehensive statutory and regulatory framework that governs the functioning of the securities markets, including the conduct at issue here.
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As reflected in the recent SEC Staff Report on Equity and Options Market Structure Conditions in Early 2021, and a recently announced proposed rule regarding accelerating the securities transaction settlement period, the SEC is actively regulating the conditions that led to the market volatility that characterized the January 2021 short squeeze. Plaintiffs’ Amended Antitrust Complaint threatens to introduce concurrent securities and antitrust regulation of the same conduct, with significant conflicts certain to follow, the defendants say.
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“After a year of reviewing tens of thousands of pages of documents produced by defendants, amending their complaints and shifting their theories, Plaintiffs still cannot state a viable claim for one simple reason: there was no conspiracy, and no violation of the antitrust laws. This Court should dismiss the Amended Antitrust Complaint with prejudice”.
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