Golubowski v. Robinhood Markets, Inc.

Background

The plaintiffs brought claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. They alleged that Robinhood’s registration statement and prospectus for its July 30, 2021 initial public offering contained false or misleading statements and omissions about declining performance metrics and Robinhood’s customer-focused business strategy.

The alleged performance metrics included monthly active users, assets under custody, net cumulative funded accounts, average revenue per user, cryptocurrency trading volume, and revenue. Plaintiffs alleged that some metrics declined between May and July 2021 but were not disclosed in the offering documents. They also alleged that Robinhood’s statements about platform reliability, customer support, serving smaller investors, and “democratizing finance” misrepresented the company’s actual practices.

Court’s Analysis

The court analyzed the claims under the standard for a motion to dismiss for failure to state a claim. It held that the complaint did not sufficiently allege that Robinhood’s disclosures were false or misleading.

Regarding the performance metrics, the court found that Robinhood accurately reported historical data for 2019, 2020, and the first two quarters of 2021. The complaint did not provide enough historical or other context to show that the May-to-July 2021 declines were unusual, extraordinary, or evidence of a larger trend requiring disclosure before the end of the quarter. The court also noted that some metrics increased or remained level during that period. Robinhood’s offering documents warned that historical growth might not continue and that growth rates could decline significantly. The court found those warnings sufficient under the circumstances, including for the alleged cryptocurrency-related declines.

The court separately rejected the claims based on Items 105 and 303 of Regulation S-K. It found that Robinhood disclosed material risks involving market conditions, cryptocurrency volatility, customer support, platform outages, and related issues. The complaint also did not adequately allege that the short-term metric declines reflected a persistent business trend requiring disclosure under Item 303.

As to Robinhood’s business-strategy statements, the court characterized statements about the company’s beliefs, goals, customer relationships, and efforts to make investing approachable as opinions, general optimism, or aspirational statements rather than actionable factual misrepresentations. The court also found that Robinhood disclosed significant challenges involving outages, trading restrictions, options trading, customer support, and customer-account security. Plaintiffs’ disagreement with Robinhood’s business choices did not establish a Securities Act violation.

The Section 15 claim depended on an underlying violation of Sections 11 or 12. Because the court found that the complaint did not adequately allege such a primary violation, it dismissed the Section 15 claim as well.

Disposition

Judge Edward M. Chen granted defendants’ motion to dismiss with leave to amend. The amended complaint was due within 30 days of the order. The order disposed of Docket No. 78.