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Conspiracy Alleged to Stop Retail Buys of Certain Securities Class Action

The complaint for this class action describes what it calls “a conspiracy to deprive individual investors … of their ability to invest in the open market in the midst of an unprecedent[ed] stock rise so that Defendants could shield themselves from incurring substantial losses as a result of their own high-risk short selling strategies.” The defendants are a long list of brokerages, funds, and clearinghouses, including Morgan Stanley Smith Barney, E*Trade, Charles Schwab, and Robinhood.

The complaint makes a distinction between retail investors, individuals who are trading for themselves, and institutional investors, who trade professionally for entities such as commercial banks and mutual funds.

According to the complaint, some retail investors believed that certain securities were undervalued. These included stock in such companies as GameStop, AMC Entertainment, and Tootsie Roll Industries. In the complaint, these are referred to as the Relevant Securities. These retail investors began to buy those stocks, causing their prices to rise.

Around the same time, institutional investors were taking the opposite position and shorting the Relevant Securities. Short sales are risky positions, because the potential losses are theoretically unlimited if the price rises instead of falling. The rise in price exposed those institutional investors to “potential losses of several billion dollars[,]” the complaint says.

To limit their losses,” the complaint says, “Defendants then orchestrated an anticompetitive scheme to limit trading in the Relevant Securities.”

On the morning of January 28, 2020, the retail investors discovered that the brokerage defendants had abruptly restricted their ability to trade the Relevant Securities: They had canceled all waiting buy orders and disabled all “buy” features for those securities on their websites and mobile apps. The retail investors could not continue buying these securities, and the prices fell.

However, the institutional investors were still allowed to buy. They were therefore able to cover their short positions at what the complaint calls “the artificially reduced price.”

Although not all brokerages stopped buys, the complaint says that the clearinghouse defendants “raised the fees and/or removed the ability to fill purchases of the Relevant Securities to brokerages that did not comply with the anticompetitive conduct.”

According to the complaint, the Securities and Exchange Commission (SEC) stated on January 29, 2020 that it was beginning an investigation into the situation.

Two classes have been defined for this action.

  • The first is all persons or entities in the US who directly bought securities among the Relevant Securities listed in this case from one or more of the defendants in this case, between January 1, 2021 and the time the anticompetitive effects of the defendants’ unlawful conduct stops.
  • The second is all persons or entities in the US who placed an order after the close of the market on January 27, 2021 to buy securities among the Relevant Securities from one or more of the defendants in this case where the order was cancelled or otherwise left unfilled due to the anticompetitive effects of defendants’ unlawful conduct.
Article Type: Lawsuit
Topic: News

Most Recent Case Event

Conspiracy Alleged to Stop Retail Buys of Certain Securities Complaint

February 8, 2021

The complaint for this class action describes what it calls “a conspiracy to deprive individual investors … of their ability to invest in the open market in the midst of an unprecedent[ed] stock rise so that Defendants could shield themselves from incurring substantial losses as a result of their own high-risk short selling strategies.” The defendants are a long list of brokerages, funds, and clearinghouses, including Morgan Stanley Smith Barney, E*Trade, Charles Schwab, and Robinhood.

Conspiracy Alleged to Stop Retail Buys of Certain Securities Complaint

Case Event History

Conspiracy Alleged to Stop Retail Buys of Certain Securities Complaint

February 8, 2021

The complaint for this class action describes what it calls “a conspiracy to deprive individual investors … of their ability to invest in the open market in the midst of an unprecedent[ed] stock rise so that Defendants could shield themselves from incurring substantial losses as a result of their own high-risk short selling strategies.” The defendants are a long list of brokerages, funds, and clearinghouses, including Morgan Stanley Smith Barney, E*Trade, Charles Schwab, and Robinhood.

Conspiracy Alleged to Stop Retail Buys of Certain Securities Complaint
Tags: Antitrust, Collusion and Price Fixing, Price Manipulation