SAN FRANCISCO, Feb. 2, 2021 /PRNewswire/ -- The Joseph
Saveri Law Firm filed an antitrust class action lawsuit today on
behalf of a class of retail investors in federal court against 35
defendants, including Robinhood, E*TRADE, TD Ameritrade, Melvin
Capital, Citadel, Sequoia Capital, and others. The plaintiffs
allege that they and other retail investors continue to be injured
due to a large, overarching conspiracy among the defendants to stop
them from buying stocks in open and fair public securities markets.
Plaintiffs contend that the purpose and effect of the scheme was to
shield hedge funds, venture capitalists, and institutional
investors from massive losses they had exposed themselves to due to
their highly speculative short selling strategies. Plaintiffs bring
claims under the federal and state antitrust laws as well as other
state laws and common law.
The retail investors held shares in twelve companies: GameStop
(GME), AMC Theaters (AMC), American Airlines (AAL), Bed, Bath and
Beyond (BBBY), Blackberry (BB), Express (EXPR), Koss (KOSS), Naked
Brand Group (NAKD), Nokia (NOK), Sundial Growers Inc. (SNDL),
Tootsie Roll Industries (TR), and Trivago N.V. (TRVG).
Several large hedge funds and investment firms, including
defendants Citadel and Melvin Capital, possessed massive "short"
positions in these relevant securities. "Short" sellers borrow
shares or other interests in corporate stock, securities, or other
assets. In so doing, they bet that prices of the securities will
decrease. If the stock prices in fact drop, a short seller buys the
stock back at a lower price and returns it to the lender. The
difference between the sell price and the buy price is the profit.
Short sellers essentially bet on a stock's failure or decline
rather than its success or increase.
Retail investors correctly identified that the relevant
securities were undervalued. In fact, as the plaintiffs allege, the
short positions were over-leveraged as much as 140%, such that
institutional investors could not close their positions. These
retail investors then began purchasing "long" positions in these
companies, driving stock prices upward, resulting in great losses
to those invested in short positions.
Short sellers were caught in a classic "short squeeze." When the
price of an asset rises, short sellers normally face pressure to
buy back stock to exit their short positions and mitigate their
losses. Instead, as part of the scheme, hedge funds and others
holding short positions publicized the relevant securities as being
less valuable than retail investors believed. When retail investors
continued to acquire shares and drive prices even higher, hedge
funds and others faced potentially disastrous exposure when
required to cover their short positions.
On January 28, many brokerages
abruptly and unilaterally restricted retail investors' ability to
buy long positions—in some cases removing the option to buy shares
of the relevant securities while openly permitting them to sell
their existing shares or prohibiting users from viewing the tickers
for some or all of the relevant securities. Even those retail
investors who had queued orders overnight to purchase stock when
the markets opened on January 28
discovered that their purchase orders had been cancelled without
The coordinated prohibition on buying any new shares of the
relevant securities eventually led to a massive sell-off and a
steep decline in share prices. While retail investors continued to
be prohibited from purchasing securities at the reduced price,
institutional investors were permitted to buy securities at the
artificially reduced price, closing their short positions.
"Rather than use their financial acumen to compete and invest in
good opportunities in the market to recoup the losses in their
short positions, or paying the price for their highly speculative
bad bets, these defendants instead hatched an anticompetitive
scheme to limit trading in the relevant securities," says
Joseph Saveri, counsel for the
plaintiff retail investors. "It is unlikely that such a widespread
ban among brokerages would have been achievable without a concerted
effort in violation of antitrust laws."
Plaintiffs seek to recover damages, as well as injunctive
relief, on behalf of themselves and the proposed class, from the
defendants. The case is Cheng, et al. v. Ally Financial Inc. et.
al., case number 21-cv-00781, in the U.S. District Court for
the Northern District of California.
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