Robinhood moves to deny customers’ claims and class certification.
Online trading platform Robinhood is facing a possible class action lawsuit involving millions of its customers as the company prepares for a high-profile IPO. Executives are now attempting to mitigate this litigation by filing a preemptive motion to deny class certification.
Plaintiffs’ attorneys submitted their amended class action complaint in May, alleging customers “overpaid for their trades to be executed.” U.S. District Judge Yvonne Gonzalez Rogers of Oakland, California, who is overseeing the case, has yet to rule on the status of the securities class action.
Robinhood attorneys from Debevoise & Plimpton, in their latest move, are attempting to shoot down class certification before anyone has asked for this. The motive behind the filing seems to be to avoid the time and expense of this type of litigation.
“It’s a perfect storm of unique facts,” said shareholder attorney Joel Fleming of Block & Leviton of the unusual turn of events. “I don’t see this as the start of a new wave.”
The 9th U.S. Circuit Court of Appeals held in 2009’s Vinole v. Countrywide that defendants can move preemptively to avert class certification. Since the Vinole decision, at least two trial judges in the 9th Circuit have granted preemptive motions to deny class certification.
The plaintiffs are being represented by Liddle & Dubin, Ahdoot & Wolfson and Bursor & Fisher. They’re not investors claiming that they lost money trading on the platform, but, rather, customers who’ve claimed the company “breached its duty under federal securities law to execute customers’ trades on the best terms reasonably possible.”
The lawsuit alleges Robinhood’s business model during the 2016-2020 class period “depended on revenue from principal trading firms that paid for the right to execute Robinhood customers’ trades. In turn, those firms allegedly executed trades by Robinhood customers on suboptimal terms that allowed the intermediaries to fund their payments to Robinhood. Robinhood billed itself as a no-commission platform, but these inferior execution prices amounted to backdoor commission fees.”
There’s no share price at issue, which the company cited in its move to deny claims and oppose class certification. Robinhood attorney state, “A breach of the duty of best execution does not affect the market price of any securities. Instead, each class member must show that she directly relied on the alleged misrepresentations. The class can’t be certified if every class member must prove reliance and damages individually.” That’s why, according to Robinhood, “no securities class has ever been certified in a case alleging a breach of the duty of best execution.”
The investment firm was also recently forced to pay a record-breaking $70 million FINRA penalty, which is telling of its legal and financial woes as of late. And, earlier this year, a user filed class-action lawsuit followed the app’s decision to restrict GameStop from trading on its platform.
“Robinhood is not acting in the consumer’s best interest,” according to DoNotPay CEO Joshua Browde. “A lot of users who sign up aren’t the most sophisticated investors. They feel betrayed by a platform that has the literal name Robinhood.”