Robinhood responds to complaint about poor execution quality

Robinhood has responded to a renewed complaint over its payment for order flow arrangements with several market makers, including Citadel Securities, which allegedly worsened execution quality and harmed Robinhood’s customers. Documents submitted by Robinhood at the Florida Southern District Court reveal the company’s push to dismiss the case.

Let’s recall that the lawsuit was brought by Jim Antonio Alers. The plaintiff aims to represent the following class:

All former and current Customers of Robinhood in Florida, United States who traded on Robinhood’s platform within 4 years preceding the filing of this lawsuit (the “Class Period”).

The list of defendants includes Robinhood Financial, LLC, Citadel Securities, LLC, Apex Clearing Corporation, Two Sigma Securities, LLC, Wolverine Securities, LLC, and Virtu Financial, Inc. Robinhood is accused of breaching fiduciary duties, whereas the market makers are accused of aiding and abetting Robinhood’s breach of fiduciary duty.

Robinhood says that plaintiff’s arguments confirm why his aiding and abetting claim against the Market-Makers should be dismissed. While the plaintiff acknowledges that the law requires him to plead the Market-Makers’ “knowledge of the fiduciary duty breach by Robinhood” and “substantial assistance”, the plaintiff points to no allegations in the Amended Complaint that do so.

Instead, Robinhood says, the plaintiff merely repeats what is already alleged without grappling with the pleading deficiencies identified by Defendants, each of which is fatal to his aiding-and-abetting claims.

Specifically, the plaintiff attempts to satisfy both “actual knowledge” and “substantial assistance” using a single factual allegation: “when the Market Makers consummated the arrangements, in other words, received order flow . . . and paid Robinhood in accordance with the arrangement, this was the breach coming to fruition.”

Robinhood says that sole allegation fails to satisfy either the “actual knowledge” or the “substantial assistance” element of his claim.

Furthermore, Robinhood argues that a well-settled case law requires dismissal under the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which precludes state law class actions based on a misrepresentation or “manipulative or deceptive device” in connection with the purchase or sale of securities.

Robinhood says:

“Plaintiff’s transparent gamesmanship and superficial changes in the Amended Complaint do nothing to save this case from dismissal”.

Plaintiff already admitted that his claims are based on alleged misrepresentations and omissions: “This action concerns the material misrepresentations and omissions made by Robinhood relating to its customers regarding its revenue sources . . . and relating to certain false statements about the execution quality Robinhood achieved for its customers’ orders.” Plaintiff’s deletion of explicit references to alleged misrepresentations – purportedly to “eliminate any vagueness” – does not change the nature of his claims and does not avoid dismissal under SLUSA, Robinhood argues. And, even in the Amended Complaint, Plaintiff still alleges misrepresentations and omissions.

Separately, Plaintiff entirely fails to address SLUSA’s “manipulative or deceptive device” prong, even though it is an independent basis to apply SLUSA.

Robinhood pushes for a transfer of the venue to the United States District Court for the Northern District of California or, in the alternative, dismissal of this action pursuant to SLUSA and for failure to state a claim.