By Jonathan Stempel
(Reuters) -A U.S. judge on Wednesday said Robinhood Markets Inc must face a lawsuit by customers who accused the online trading platform of fraudulently concealing their actual trading costs while promising “commission free” trades.
U.S. District Judge Yvonne Gonzalez Rogers in Oakland, California, said customers in the proposed class action had standing to sue over securities they bought and sold on Robinhood’s platform.
Robinhood was accused of concealing how its business relied heavily on “payment for order flow,” with the Menlo Park, California-based company collecting “unusually high” fees from outside broker-dealers who processed customer trades.
Customers led by Ji Kwon, a Californian, said they ultimately bore these costs and often got worse prices on trades than if they had gone to rivals that charged commissions.
They said this “materially undermined” Robinhood’s duty to provide the best prices and execution on trades.
Citing a recent ruling by the federal appeals court in Manhattan, Robinhood said the case should be dismissed because customers did not allege any misstatements about the issuers of their securities.
But the judge rejected that argument in a Jan. 11 decision allowing investors to sue luxury electric car maker Lucid Group Inc and said the same reasoning applied.
Robinhood and its lawyers did not immediately respond to requests for comment.
The proposed class includes U.S. users of Robinhood from Sept. 1, 2016 to June 16, 2020 who placed trades where the company received payment for order flow.
The case is In re Robinhood Order Flow Litigation, U.S. District Court, Northern District of California, No. 20-09328.
(Reporting by Jonathan Stempel in New York; Editing by Lisa Shumaker)