Calif. Firm Wants ‘Short Squeeze’ Suits Sent To San Francisco

(Law360)  A San Francisco law firm behind one of the dozens of lawsuits spawned from recent weeks of frenzied stock trading is seeking to combine the various suits into a multidistrict litigation that would play out in Northern California.

The Joseph Saveri Law Firm Inc. asked the U.S. Judicial Panel on Multidistrict Litigation on Thursday to consolidate the more than 40 lawsuits filed thus far over the controversy that erupted on Jan. 28 when stock trading platform Robinhood and several other online brokerages enacted restrictions on trading in shares of GameStop, AMC Entertainment Holdings and other stocks caught in the middle of a trading war between independent retail investors and short-selling hedge funds.

The Saveri firm, which represents Robinhood users Shane Cheng and Terell Sterling in a putative class action filed Feb. 1, said the flurry of cases all deal with roughly the same defendants and the same allegations: that bullish retail traders were carrying out a “short squeeze” on hedge funds and other short-sellers that was upended when they were prevented from making purchases and driving up the prices of targeted stocks, while short-sellers were able to depress the prices with no such trading restrictions.

“Plaintiffs in each action seek class treatment of their claims — including antitrust claims — that are or nearly are the same, alleging that on or around January 28, 2021, defendants engaged in a conspiracy and took action that restrained trade by prohibiting retail investors from purchasing the relevant securities, rendering the market for securities anticompetitive, thus resulting in artificially set prices and limited ability to trade the relevant securities,” the motion said.

Of the 46 lawsuits filed between Jan. 28 and Feb. 4 that Law360 has identified as dealing with the “short squeeze” and buying blackouts, all but three named Robinhood as a defendant, while several others assert allegations against TD Ameritrade, E-Trade, WeBull Financial, M1 Holdings and Citadel Financial, to name a few.

The action filed by Cheng and Sterling notably names the largest number of defendants of any other suit, which their counsel drew attention to on Thursday before adding that most of those defendants, including Robinhood, Charles Schwab Corp. and Alpaca Securities LLC, have their principal places of business in the Northern District of California.

“These defendants would benefit from the convenience of an MDL location in San Francisco to minimize the burdens associated with travel and communication spanning multiple time zones,” the firm said.

As the firm points out, the majority of the lawsuits filed against Robinhood and other financial firms being tied to the short squeeze have been filed in California, with 13 of 18 California-filed suits coming in through the Northern District.

The spate of lawsuits filed over the past week relates to the unprecedented price action seen by GameStop and other targeted public companies as the result of an intense buying rally coordinated by independent investors on the Reddit forum WallStreetBets, with the full-throated mission of hurting institutional investors that bet big on the erosion of stock prices of companies whose pre-pandemic heydays are becoming increasingly distant.

The buying rally has seen GameStop stock go from around $20 in the middle of January to a record high of $483 just after trading began on Jan. 28, the day that Robinhood and other prominent trading platforms like TD Ameritrade, Charles Schwab and Interactive Brokers suspended customers’ ability to purchase shares or call options — the investment equivalent of a bet that a stock’s price will go up — of the very stocks being targeted by WallStreetBets.

GameStop and other stocks fell precipitously following the decision and have continued to gyrate in the week since, though never touching the record highs they’d reached before the trading restrictions. Joseph Saveri, whose firm reached out to the JPML for a potential consolidation on Thursday, told Law360 on Friday that the litigation was “about individual investors [who] invested their hard-earned money in the stock market and were stripped of the rights to control their investments due to a large, overarching conspiracy to prevent the market from operating freely and to stop the defendants from hemorrhaging losses as a result of their highly speculative short-selling strategies.”

“All of the other cases allege similar facts,” Saveri said in an email. “It makes sense for these cases to be centralized in one court. Because many of the companies, and the wrongful acts, occurred in the Northern District of California, and the bench has substantial experience with these types of cases, it makes sense for the cases to be centralized here. We look forward to moving this case forward quickly.”

Robinhood has not yet named its counsel in the various litigations it faces, though it has reportedly hired Cravath Swaine & Moore LLP for representation. The firm did not immediately respond to a request for comment Friday.

The case is In re: Short Squeeze Antitrust Litigation, before the U.S. Judicial Panel on Multidistrict Litigation.

(Reporting by Dean Seal)