Judge Drops Meme-Stock Lawsuit Targeting Citadel Securities, Robinhood

Citadel Securities is“pleased” with the decision, a spokesperson said.

Tiffany Hagler-Geard/Bloomberg

Tiffany Hagler-Geard/Bloomberg

A federal judge in Florida has dismissed a lawsuit accusing Robinhood Markets and Citadel Securities of colluding to stop investors from purchasing so-called meme stocks amid extreme market volatility.

On Thursday, Judge Cecilia Altonaga ruled to drop the January lawsuit filed by investors against the two firms and other market participants. At the heart of the suit is Robinhood’s decision to halt trading of AMC Entertainment Holdings and GameStop when the stocks were skyrocketing early this year.

Some of those trades would have been processed through Citadel Securities, which acts as a market maker. Citadel also runs a separate hedge fund business.

Institutional Investor previously covered the lawsuit, which attempted to link Robinhood’s decision to halt trading to a desire to protect Citadel. The suit, filed on behalf of retail investors, alleged that Citadel had been shorting AMC and GameStop through its hedge fund business. Altonaga said in her decision to dismiss these claims that the evidence was not strong enough to show that link.

“There are no allegations that Citadel Securities threatened or suggested it would cut off business relationships with any other defendants if they did not impose trading restrictions, and plaintiffs failed to otherwise explain why each defendant would not simply use another market marker in such a scenario,” Altonaga wrote in her decision, adding that the lawsuit “provides an obvious alternative explanation for imposing the trading restrictions provided in the complaint: increased collateral requirements caused by market volatility.”

The decision also referenced private messages between Citadel and Robinhood that were obtained by the plaintiffs’ lawyers from regulators. In an amended version of the complaint filed this fall, the plaintiffs claimed the “numerous communications. . . indicate that Citadel applied pressure on Robinhood.” Altonaga dismissed this as well.

“These emails may be somewhat suspicious given the participants and their timing,” she wrote in the decision. “But are a few vague and ambiguous emails between two firms in an otherwise lawful, ongoing business relationship enough to nudge plaintiffs’ claims across the line from conceivable to plausible? The court thinks not.”

In a statement to II, a spokesperson for Citadel said, “We are pleased that the court agreed that there is no basis for the plaintiffs’ conspiracy theories and summarily dismissed the case.”

The investors who filed the lawsuit still have an opportunity to continue the fight: Altonaga wrote that they could file one last amended complaint by December 20 to be considered by the court.