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Per a federal court ruling on August 11, 2022, Robinhood Markets Inc, the app-based online stock trading platform, must face market manipulation claims brought by a class of its investors. [1]

The ruling by Judge Cecilia Altonaga of the U.S. District Court for the Southern District of Florida denied Robinhood’s motion to dismiss shareholder allegations of market manipulation. The allegations stem from Robinhood’s actions in the wake of the meme stock frenzy of early 2021. [1] In the lawsuit, Robinhood shareholders allege that Robinhood engaged in tactics aimed at artificially lowering the prices of nine stocks at the center of the frenzy. These stocks included GameStop, Bed Bath & Beyond, and AMC. [1]

The meme stock frenzy took place in January 2021 when social media users stirred extraordinary investment interest in several unexpected stocks. The outpour of interest in these stocks was not founded on each stock’s actual performance, but rather on the prospect of triggering a short squeeze on the stocks.

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Last week, the Securities and Exchange Commission (“SEC”) released its long-awaited report formally debriefing the events that transpired during the January and February 2021 meme stock craze. The 44-page report, titled “Staff Report on Equity and Options Market Structure Conditions in Early 2021” provides SEC staff’s analysis of the mechanisms behind the meme stock phenomenon, ultimately debunking a few theories made popular over social media and other media outlets as the events unfolded.

By way of a brief overview, in January 2021 a group of about 100 stocks experienced monumental price and trading volume fluctuations. These stocks, many of which were consumer-centered companies with high brand awareness, gained rapid attention over social media platforms like Reddit and YouTube.

While the SEC’s report addresses the events and impacts of the meme stock phenomenon broadly, it focuses the bulk of its analysis around GameStop Corp (“GME”), arguably the most famous of the meme stocks.

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