The proposed class action alleging nondisclosure of trading trends following the so-called meme stock craze of early 2021 will return to district court on two of the three claims in the case, the US Court of Appeals for the Ninth Circuit said in a divided opinion.
Information about declines in certain metrics merely needed to be “material” to prompt updated disclosures in registration and prospectus documents between regular quarterly reports, Judge Milan D. Smith Jr. said for the court.
The US District Court for the Northern District of California incorrectly used a stricter standard from the First Circuit for the investors to meet when it dismissed the case, Smith said. That standard, requiring such intra-quarter disclosures only when there’s been an “extreme departure” from historical results, “is not the law of this circuit,” he said.
The court also sent one claim alleging a misleading Securities and Exchange Commission filing back to the district court but affirmed the dismissal of another claim based on a different SEC filing.
Judge Johnnie B. Rawlinson dissented in part, saying the court should have affirmed the dismissal of all the claims. “In light of Robinhood’s significant disclosures regarding the panoply of risks it faced, there is simply no basis under our precedent for this litigation to proceed,” she said.
Robinhood said in an email that the investors’ claims are meritless. “We are pleased with the Ninth Circuit’s decision that affirms the District Court’s dismissal of one of plaintiff’s legal theories, and we look forward to demonstrating again that all claims should be dismissed,” it said.
The investors alleged Robinhood failed to disclose declining performance measures and cryptocurrency trading in the registration statement for its July 2021 IPO. It disclosed strong transaction-based revenue figures for 2020 and the first quarter of 2021—the period of frenzied meme stock trading and a surge in Dogecoin transactions—but allegedly didn’t provide final results for the second quarter, or early third quarter, of 2021. And it made additional statements in the offering documents that the investors said were misleading.
In October 2021, the company posted disappointing financial results for the third quarter, causing its stock price to decline by about 10%, the investors said.
Smith said that while registrants “have no duty to disclose interim sales” when they lag behind internal projections, this case alleges “Robinhood’s interim results lagged behind its last reported results,” he said.
“If Robinhood had disclosed the difference between its interim results and last reported results, then it would have revealed its results but it would not have speculated about the future,” he said, joined by Judge Jed S. Rakoff of the Southern District of New York, who sat by designation.
“We are pleased about Friday’s two to one ruling by the Ninth Circuit in favor of our clients,” counsel for the investors Tom Laughlin of Scott & Scott Attorneys at Law LLP told Bloomberg Law via email Tuesday. “Overturning the previous dismissal of this high-stakes litigation against Robinhood Market Inc. reconfirms our deep commitment to bringing justice to the plaintiffs’ investor class that suffered significant financial losses following the trading platform’s 2021 IPO.”
Counsel for the defendants included Cravath Swaine & Moore LLP and Orrick Herrington & Sutcliffe LLP.
The case is Sodha v. Golubowski, 9th Cir., No. 24-1036, 8/29/25.
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