Compass Lexecon Client Robinhood Prevails in Market Manipulation Dispute

Court Agrees with Expert Opinions of Compass Lexecon President Professor Daniel R. Fischel

In early 2021, several stocks including GameStop Corp. (GME) and AMC Entertainment Holdings Inc. (AMC) experienced unexpected increases in prices and volatility, reaching dramatically higher levels than prices during the prior period. These stocks became known as “meme stocks” because of widespread media attention and discussion on social media platforms like Reddit. Social media commentators noted that many of the stocks were being sold short by large institutional investors and viewed the large short positions as an opportunity to generate a buying frenzy in the stocks and thus create a “short squeeze.”

Due to the large increases in volatility and prices, Robinhood Markets, Inc. (Robinhood) and several other brokerages implemented various risk mitigation measures. These included trading restrictions on certain “meme stocks” between late January and early February 2021. In response to these restrictions, a purported class of individual investors in the “meme stocks” (Plaintiffs) filed a Federal suit in the Southern District Court of Florida.

Plaintiffs alleged that Robinhood’s various trading restrictions artificially depressed the market prices of certain “meme stocks” and that Robinhood engaged in unlawful market manipulation. Further, they alleged that Robinhood misled the market in public interviews by claiming that its restrictions were similar to those made by other brokerages.

Compass Lexecon President, Professor Daniel R. Fischel, was retained by Cravath, Swaine & Moore LLP on behalf of Robinhood during the class certification phase to evaluate the economic evidence related to reliance, market efficiency, and to assess whether damages, if any, could be reliably determined on a class-wide basis without individualized proof. Professor Fischel filed two expert reports and provided deposition testimony in which he opined, among other things, that Plaintiffs could not establish that they relied on the integrity of the market prices on a class-wide basis, as prices for the “meme stocks” did not result from value relevant information during the alleged class period.

On November 13, 2023, Judge Cecilia M. Altonaga of the Southern District Court of Florida ruled in favor of Robinhood and denied Plaintiffs’ motion for class certification. Judge Altonaga’s ruling was based on her conclusion that the “meme stocks” at issue could not have traded in an efficient market during the class period. She further held that Plaintiffs failed to show that they relied on Robinhood’s alleged misstatements or the integrity of the market price when making their trading decisions.

Professor Fischel was supported by a team led by Adel Turki that included Jessica Mandel, Jonathan Polonsky, Alex Rinaudo, Laura Yergesheva, James Tam, Elizabeth Wall, Aiden Levi-Minzi, and Brent Gao.

Compass Lexecon worked with Kevin Orsini, Antony Ryan, Brittany Sukiennik, and Daniel Slifkin of Cravath, Swaine & Moore LLP who successfully represented Robinhood.