Crypto Trading App Robinhood Seeks Dismissal of Lawsuit Over $2.1B IPO
On Friday, May 9, 2023, crypto trading app Robinhood filed a motion to dismiss a class-action lawsuit that alleges the company misled investors ahead of its $2.1 billion initial public offering (IPO).
The motion to dismiss, filed in a federal court in San Francisco, follows a February court ruling that found no proof that disclosures in Robinhood’s IPO materials were false or misleading, or that declines in key metrics shortly before the company went public in July 2021 were historically extraordinary.
U.S. District Judge Edward Chen allowed the plaintiffs to submit an amended complaint. According to the amended complaint, Robinhood failed to provide disclosure on the popularity of meme stocks like GameStop and meme coins such as Dogecoin.
Robinhood filed for an IPO in the summer of 2021, just after the meme stock frenzy earlier in the year. The amended complaint claims that Robinhood failed to disclose the rise in crypto trading activity and the subsequent decline. Robinhood lawyers, however, argued that the substantial increase in cryptocurrency trading volume in early 2021 — along with its subsequent decline — was extensively covered in the news and social media and thus known to all reasonable investors.
“This new theory — materializing for the first time in Plaintiffs’ third try at this case — fails,” Robinhood’s lawyers wrote in their motion. “As an initial matter, Plaintiffs ignore the fact that the so-called ‘meme stock’ trading frenzy of early 2021, along with its impact on Robinhood’s business, was one of the most widely reported news events of the year.”
Last month, Robinhood agreed to pay up to $10.2 million in penalties for operational and technical failures that harmed main street investors. The investigation by the North American Securities Administrators Association (NASAA) into Robinhood’s operational flaws in the retail market, which was led by state securities regulators from Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas, was the basis for the settlement.
