In re Robinhood Outage Litigation

Northern District of California, cand-3:2020-cv-01626

AMENDED COMPLAINT [Consolidated Class Action Complaint] against Robinhood Financial, LLC, Robinhood Markets, Inc., Robinhood Securities, LLC. Filed by Jared Ward, Joseph Gwaltney, Jason Steinberg, Daniel Beckman, Michael Riggs, Colin Prendergast, Jared Leith, Kevin Russell, Omeed Mahrouyan, Mahdi Heidari Moghadam, Leila Kuri, Mengni Xia, Emma Jones, Raghu Rao, David Kostenko, Howard Morey.

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8 1 KAPLAN FOX & KILSHEIMER LLP Matthew B. George (SBN 239322) 2 Maia C. Kats (pro hac vice) Laurence D. King (SBN 206423) 3 Mario M. Choi (SBN 243409) 1999 Harrison Street, Suite 1560 4 Oakland, CA 94612 Telephone: 415-772-4700 5 Facsimile: 415-772-4707 mgeorge@kaplanfox.com 6 mkats@kaplanfox.com lking@kaplanfox.com 7 mchoi@kaplanfox.com 8 COTCHETT, PITRE & MCCARTHY, LLP Anne Marie Murphy (SBN 202540) 9 Mark C. Molumphy (SBN 168009) Leslie Hakala (SBN 199414) 10 Noorjahan Rahman (SBN 330572) Tyson C. Redenbarger (SBN 294424) 11 Julia Q. Peng (SBN 318396) San Francisco Airport Office Center 12 840 Malcolm Road, Suite 200 Burlingame, CA 94010 13 Telephone: (650) 697-6000 Facsimile: (650) 697-0577 14 amurphy@cpmlegal.com mmolumphy@cpmlegal.com 15 lhakala@cpmlegal.com nrahman@cpmlegal.com 16 tredenbarger@cpmlegal.com jpeng@cpmlegal.com 17 [Additional Counsel Appear on Signature Page] 18 19 UNITED STATES DISTRICT COURT 20 NORTHERN DISTRICT OF CALIFORNIA 21 22 Case No. 3:20-cv-01626-JD 23 In re: Robinhood Outage Litigation CONSOLIDATED CLASS ACTION 24 COMPLAINT 25 DEMAND FOR JURY TRIAL 26 27 28 Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 INTRODUCTION 2 1. Plaintiffs bring this putative class action against Defendants Robinhood Financial, 3 LLC ("Robinhood Financial"), Robinhood Securities, LLC ("Robinhood Securities"), and 4 Robinhood Markets, Inc. ("Robinhood Markets") (collectively, "Robinhood"), demanding a trial 5 by jury. Plaintiffs make the following allegations pursuant to the investigation of counsel and based 6 upon information and belief, except as to the allegations specifically pertaining to each individual 7 Plaintiff, which are based on personal knowledge. 8 2. Robinhood is an online brokerage firm founded in 2013 that states it is "a pioneer 9 in commission-free investing." Robinhood's customers can place securities trades through the 10 firm's website and by using a web-based application (or "app"). Robinhood permits customers, 11 when its trading platform is operational, to purchase and sell certain securities, including option 12 contracts, and engage in trading on margin. The company has no storefront offices and operates 13 entirely online. Robinhood is a FINRA1 regulated broker-dealer 14 3. Unfortunately for Robinhood's customers, including Plaintiffs and the putative class 15 (the "Class"), Robinhood's trading systems have repeatedly crashed—preventing Plaintiffs and the 16 Class from accessing their accounts and making any trades through the firm's website or app. The 17 most significant crash occurred on Monday, March 2, 2020, and extended through mid-day 18 Tuesday, March 3, 2020. The March 2-3 outage crashed all of Robinhood's operating systems for 19 more than a full trading day. 20 4. Several days later, on March 9, 2020, Robinhood again experienced another 21 complete system outage. Plaintiffs and Class members again experienced significant outages on 22 March 13, 16, and June 18, 2020. In total, the Robinhood website and app have gone down 47 23 times since March.2 The service outages are individually referred to as an "Outage" and 24 1 Financial Industry Regulatory Authority, Inc. (FINRA) is a private corporation that acts as a a non-governmental, self-regulatory organization that regulates member brokerage firms and 25 exchange markets. 2 26 Nathaniel Popper, Robinhood Has Lured Young Traders, Sometimes With Devastating Results, The New York Times (July 8, 2020) 27 https://www.nytimes.com/2020/07/08/technology/robinhood-risky- trading.html?searchResultPosition=2 (last visited Aug.19, 2020). 28 -1- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 collectively as the "Outages".3 2 5. During the Outages, Robinhood's customers were completely unable to use the 3 services, including to buy or sell securities or to exercise option contracts through Robinhood's 4 website and app. Robinhood's help center, which should provide email and phone support, was 5 also unavailable during the Outages and customers were unable to obtain any information or 6 meaningful assistance from Robinhood. During the Outages, Class members repeatedly attempted 7 to contact the help center, by phone and email, to no avail. Robinhood has admitted that during the 8 Outages the help center was unavailable and that Robinhood's phone support was non-existent. 9 Customers were thus left with no recourse during the Outages, unable to access their funds or 10 exercise time-sensitive trades. They were forced to sit helplessly until services were re-established. 11 6. The Outages on March 2 and 3, 2020, were particularly devastating for Plaintiffs 12 and the Class as the Dow Jones Industrial Average rose 5.1% during that time.4 Meanwhile, 13 Robinhood users were locked out of their accounts and unable to access their funds or make 14 trades—while the markets gained a record $1.1 trillion. The Outage on March 9, 2020, was 15 similarly harmful, as the Dow Jones Industrial Average had its largest point plunge in history up to 16 that date.5 Again, Plaintiffs and the Class were unable to access their funds or make trades and 17 suffered significant losses as a result. Trades that were placed before the Outages, for which 18 Plaintiffs and the Class received trade confirmations, also failed, or were processed at incorrect 19 times or incorrect prices during the Outages. Additionally, Plaintiffs and the Class members were, 20 at times during the Outages, able to seemingly place trades, and again the Plaintiffs and class 21 received trade confirmations; however, it was later learned that those trades also failed, or were 22 3 23 Plaintiffs and the Class seek damages related to the Outages on March 2, 3, and 9, 2020. 4 Fred Imbert and Eustance Huang, Dow roars back from coronavirus sell-off with biggest gain 24 since 2009, surges 5.1%, CNBC (March 2, 2020) https://www.cnbc.com/2020/03/01/awaiting- us-stock-futures-open-at-6-pm-after-wall-streets-worst-week-since-2008.htm (last visited Aug. 25 19, 2020). 5 26 Kimberly Amadeo, How Does the 2020 Stock Market Crash Compare With Others? The Balance (April 27, 2020) https://www.thebalance.com/fundamentals-of-the-2020-market-crash- 27 4799950#:~:text=The%20stock%20market%20crash%20of,point%20drops%20in%20U.S.%20hi story (last visited Aug. 19, 2020). 28 -2- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 processed at incorrect times or incorrect prices during or after the Outages. 2 7. Such failures constitute negligence, breaches of contract and fiduciary duties, and 3 are violations of FINRA regulations. Per FINRA regulations, Robinhood has a duty to process 4 trades timely and at the best prices for its users. Robinhood is also required to have a business 5 continuity plan identifying a procedure relating to an emergency or significant business disruption. 6 During the Outages, Robinhood failed to process trades in a timely manner or at all, and it was 7 discovered that Robinhood's continuity plan was nonexistent. Robinhood simply abandoned its 8 customers. 9 8. The loss of access to Robinhood's trading platform and absence of contingency 10 plans and customer service support caused concrete, particularized, and actual damages for 11 Robinhood customers. Plaintiffs and members of the class were unable to monitor their accounts, 12 make trades, or exercise their option contracts to capitalize on gains or to mitigate losses. Many 13 Plaintiffs and Class members held options contracts that expired, worthless, during the Outages. 14 And some of those contracts, such as the contracts held by certain Plaintiffs herein, were exercised 15 by Robinhood during the Outages, without express authorization or approval of its customers, at a 16 loss. Other Plaintiffs and Class members were subjected to forced margin calls as a result of the 17 Outages, which they otherwise would have been able to avoid if they had access to their accounts. 18 9. Robinhood accepts fault for the Outages, which it attributes to stress on its systems. 19 According to Robinhood employees, the March 2020 "outage was rooted in issues with the 20 company's phone app and servers. They said the start-up had underinvested in technology and 21 moved too quickly rather than carefully."6 These flaws were known and insufficiently addressed: 22 "[s]oftware mishaps have rocked Robinhood before," including in 2018, for example, when 23 its "options trading service had an outage that locked consumers out of their accounts and stopped 24 25 26 6 Nathaniel Popper, Robinhood Has Lured Young Traders, Sometimes With Devastating Results, 27 The New York Times (July 8, 2020) https://www.nytimes.com/2020/07/08/technology/robinhood-risky- 28 trading.html?searchResultPosition=2 (last visited Aug.19, 2020). -3- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 them from closing positions[.]"7 2 10. In offering trading services, Robinhood assumed a duty to ensure that its systems 3 were sufficiently equipped to reliably deliver such services under reasonably foreseeable customer 4 demands and market conditions, such as those at issue in this case. Robinhood acted negligently 5 by failing to adequately or properly equip itself technologically and systemically to maintain 6 Plaintiff and Class members' access to trading services. Due solely to its own negligence and failure 7 to maintain adequate infrastructure, Robinhood breached obligations owed to Plaintiff and Class 8 members and caused them substantial losses. Its failures are all the more serious due to 9 Robinhood's history of such failures, the magnitude of the Outages, the absence of alternative 10 means for customers to protect their positions and investments, and lack of communication and 11 customer support. 12 11. Plaintiffs bring this class action on behalf of Robinhood customers who were denied 13 access to their Robinhood trading accounts during the Outages and for the many, including 14 themselves, who suffered losses as a result of the Outages. Plaintiffs assert putative class action 15 claims generally including negligence, breach of contract, breach of fiduciary duty, and violations 16 of California's Unfair Competition Law, on behalf of themselves and all other Robinhood 17 customers who are similarly situated. Plaintiffs seek damages, restitution, disgorgement and 18 declaratory relief. 19 PARTIES 20 12. Plaintiff Daniel Beckman ("Plaintiff Beckman") is a citizen of Florida and is over 21 the age of 18. 22 13. Plaintiff Joseph Gwaltney ("Plaintiff Gwaltney") is a citizen of Florida and is over 23 the age of 18. 24 14. Plaintiff Emma Jones ("Plaintiff Jones") is a citizen of Texas and is over the age 25 7 26 John Gittlelsohn, Annie Massa, and Jennifer Surane, Robinhood Maxed Out a Credit Line Last Month as Markets Fell, Bloomberg (March 10, 2020) 27 https://www.bloomberg.com/news/articles/2020-03-10/robinhood-maxed-out-credit-line-last- month-amid-market-tumult (last visited Aug. 19, 2020). 28 -4- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 of 18. 2 15. Plaintiff David Kostenko ("Plaintiff Kostenko") is a citizen of Washington and is 3 over the age of 18. 4 16. Plaintiff Leila Kuri ("Plaintiff Kuri") is a citizen of North Carolina and is over the 5 age of 18. 6 17. Plaintiff Jared Leith ("Plaintiff Leith") is a citizen of Minnesota and is over the age 7 of 18. 8 18. Plaintiff Omeed Mahrouyan ("Plaintiff Mahrouyan") is a citizen of California and 9 is over the age of 18. 10 19. Plaintiff Mahdi Heidari Moghadam ("Plaintiff Moghadam") is a citizen of Texas 11 and is over the age of 18. 12 20. Plaintiff Howard Morey ("Plaintiff Morey") is a citizen of Oklahoma and is over the 13 age of 18. 14 21. Plaintiff Colin Prendergast ("Plaintiff Prendergast") is a citizen of California and is 15 over the age of 18. 16 22. Plaintiff Raghu Rao ("Plaintiff Rao") is a citizen of New Jersey and is over the age 17 of 18. 18 23. Plaintiff Michael Riggs ("Plaintiff Riggs") is a citizen of Pennsylvania and is over 19 the age of 18. 20 24. Plaintiff Kevin Russell ("Plaintiff Russell") is a citizen of Illinois and is over the 21 age of 18. 22 25. Plaintiff Jason Steinberg ("Plaintiff Steinberg") is a citizen of California and is over 23 the age of 18. 24 26. Plaintiff Jared Ward ("Plaintiff Ward") is a citizen of California and is over the age 25 of 18. 26 27. Plaintiff Mengni Xia ("Plaintiff Xia") is a citizen of New York and is over the age 27 of 18. 28 28. Defendant Robinhood Financial is a Delaware corporation with its principal place -5- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 of business at 85 Willow Road, Menlo Park, California 94025. It is a wholly-owned subsidiary of 2 Robinhood Markets. Robinhood Financial is registered as a broker-dealer with the U.S. Securities 3 & Exchange Commission ("SEC"). Defendant Robinhood Financial acts as an introducing broker 4 and has a clearing arrangement with its affiliate Defendant Robinhood Securities. 5 29. Defendant Robinhood Securities is a Delaware corporation with its principal place 6 of business at 500 Colonial Center Parkway, Suite 100, Lake Mary, Florida 32746. It is a wholly- 7 owned subsidiary of Defendant Robinhood Markets. 8 30. Defendant Robinhood Markets is a Delaware corporation with its principal place of 9 business at 85 Willow Road, Menlo Park, California 94025. Defendant Robinhood Markets is the 10 corporate parent of Defendants Robinhood Financial and Robinhood Securities. 11 JURISDICTION AND VENUE 12 31. This Court has jurisdiction over the subject matter of this action pursuant to 28 13 U.S.C §1332(d), because the amount in controversy for the Classes exceeds $5,000,000 exclusive 14 of interest and costs, there are more than 100 putative Class members defined below and minimal 15 diversity exists because the majority of putative Class members are citizens of a state different than 16 Defendants. 17 32. Pursuant to 28 U.S.C. § 1391, this Court is the proper venue for this action because 18 a substantial part of the events, omissions, and acts giving rise to the claims herein occurred in this 19 District where Robinhood is headquartered and where it developed and sold the financial services 20 which are the subject of the present complaint. Finally, venue is appropriate in this District pursuant 21 to 28 USC § 1391(b)(2) because Robinhood is headquartered in Menlo Park and a substantial part 22 of the acts and omissions that gave rise to this Complaint occurred or emanated from this District. 23 33. This Court has personal jurisdiction over Robinhood because it is headquartered in 24 and authorized to do business and does conduct business in California, and because it has sufficient 25 minimum contacts with this state and/or sufficiently avails itself of the markets of this state through 26 its business within this state to render the exercise of jurisdiction by this Court permissible. 27 INTRADISTRICT ASSIGNMENT 28 34. Pursuant to Civil Local Rule 3-2(c), an intradistrict assignment to the San Francisco -6- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 Division is appropriate because a substantial part of the events or omissions which give rise to the 2 claims asserted herein occurred in this Division, and because the District Court transferred this 3 matter to the San Francisco Division after it was originally filed in the San Jose Division, and then 4 consolidated about a dozen related matters filed in, transferred to, or removed to this District. 5 FACTUAL ALLEGATIONS 6 Robinhood's Business Model 7 35. Robinhood was founded by Vlad Tenev and Baiju Bhatt, who met each other at 8 Stanford University in 2005. After teaming up on several ventures, including a high-speed trading 9 firm, they created Robinhood in 2013.8 10 36. Robinhood offers people the ability to invest in stocks, ETFs, and options through 11 an electronic trading platform, both online and through an app. 12 37. Robinhood competes with other online and traditional brokerages by not charging 13 trading fees. At the time of its founding, most brokerage firms charged about $10 or more to make 14 a trade. Robinhood also competes with traditional financial institutions by offering more user- 15 friendly digital services, which has made Robinhood very popular, especially with younger traders. 16 In July of 2020, Robinhood said it had over 13 million users on its platform. In August 2020, after 17 raising $200 million in Series G funding, Robinhood was valued at $11.2 billion.9 18 38. Robinhood's original product was commission-free trades of stocks and 19 exchange-traded funds. As Robinhood grew, it added more risky and complex products—like 20 options and margin trading. Those products, combined with Robinhood's game-like interface, have 21 been a hit with millenials, and its typical customer is 31 years old on average.10 22 8 Nathaniel Popper, Robinhood Has Lured Young Traders, Sometimes With Devastating Results, 23 The New York Times (July 8, 2020) https://www.nytimes.com/2020/07/08/technology/robinhood-risky- 24 trading.html?searchResultPosition=2 (last visited Aug.19, 2020). 9 Kate Rooney, Robinhood snags third mega-investment of the year, boosting valuation to $11.2 25 billion, CNBC (August 17, 2020) https://www.cnbc.com/2020/08/17/robinhood-announces- 26 another-mega-round-valuation-soars-to-11point2b.html (last visited Aug. 19, 2020). 10 Graham Rapier, Robinhood had to install protective glass after frustrated traders kept showing 27 up at its office, Business Insider (July 10, 2020) https://www.businessinsider.com/robinhood- office-installed-bulletproof-glass-after-frustrated-traders-visited-report-2020-7 (last visited Aug. 28 19, 2020). -7- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 39. Robinhood's trading app, when functional, is designed to be easy to use. For 2 example, on the Robinhood home screen, there is a list of popular stocks that users can "trade" with 3 just the touch of the screen, which skips many of the steps that other firms require. 4 40. Robinhood also includes many features that make investing appear more like a 5 game. New members are given a free share of stock when they join Robinhood—to reveal the 6 stock users scratch-off images that look like a lottery ticket.11 Once the stock is revealed, confetti 7 appears to fall from the top of the screen. 8 9 10 11 12 13 14 15 16 17 18 41. One of Robinhood's popular features is the ability for users to engage in options 19 trading. Robinhood describes its options trading as "quick, straightforward & free." To start 20 trading options, users respond to multiple-choice questions. "Beginners are legally barred from 21 trading options, but those who click that they have no investing experience are coached by the app 22 on how to change the answer to 'not much' experience. Then people can immediately begin option 23 trading."12 24 42. According to the New York Times, Robinhood's "success appears to have been built 25 11 26 Nathaniel Popper, Robinhood Has Lured Young Traders, Sometimes With Devastating Results, The New York Times (July 8, 2020) 27 https://www.nytimes.com/2020/07/08/technology/robinhood-risky- trading.html?searchResultPosition=2 (last visited Aug.19, 2020). 28 12 Id. -8- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 on a Silicon Valley playbook of behavioral nudges and push notifications,13 which has drawn 2 inexperienced investors into the riskiest trading. . . And the more that customers engaged in such 3 behavior, the better it was for the company."14 "At the core of Robinhood's business is an incentive 4 to encourage more trading. It does not charge fees for trading, but it is still paid more if its 5 customers trade more."15 6 43. A research analyst at Chicago-based Sumner Capital group pointed out that 7 Robinhood's app has "slick interfaces. Confetti popping everywhere…They try to gamify trading 8 and couch it as an investment."16 Unfortunately for many Americans, losing investment and 9 retirement funds or accruing colossal debt is not a game, and the consequences have been tragic.17 10 44. Robinhood's digital platform app has been beset by its technology glitches, which 11 have been significant and ongoing. "In 2018, Robinhood released software that accidentally 12 reversed the direction of options trades giving customers the opposite outcome from what they 13 expected. Last year, it mistakenly allowed people to borrow infinite money to multiply their bets, 14 leading to some enormous gains and losses."18 15 45. Robinhood claims that its more recent Outages resulted from "stress on [their] 16 infrastructure" due to "unprecedented load," and "record volume." 19 But these circumstances, even 17 if true, were encouraged and driven by Robinhood's own business model—encourage its users to 18 13 19 Nudges and push notifications are reminders or prompts sent directly to users. Nudges and push notifications may appear on a users home screen similar to a text message or email alerts. 20 14 Nathaniel Popper, Robinhood Has Lured Young Traders, Sometimes With Devastating Results, The New York Times (July 8, 2020) 21 https://www.nytimes.com/2020/07/08/technology/robinhood-risky- 22 trading.html?searchResultPosition=2 (last visited Aug.19, 2020).. 15 Id. 16 23 Antoine Gara, Sergei Klebnikov, 20-Year-Old Robinhood Customer Dies by Suicide After Seeing a $730,000 Negative Balance, Forbes (June 17, 2020) 24 https://www.forbes.com/sites/sergeiklebnikov/2020/06/17/20-year-old-robinhood-customer-dies- by-suicide-after-seeing-a-730000-negative-balance/#11d468081638 (last visited Aug. 19, 2020). 25 17 Id. 18 26 Robinhood options errors, Elite Trader, https://www.elitetrader.com/et/threads/robinhood- options-errors.327998/ (last visited Aug. 19, 2020). 19 27 Baiju Bhatt and Vladimir Tenev, An Update from Robinhood's Founders, Robinhood (March 3, 2020) https://blog.robinhood.com/news/2020/3/3/an-update-from-robinhoods-founders ((last 28 visited Aug. 19, 2020). -9- Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 trade as much as possible.20 2 46. Robinhood's users trade more often than average, faster, and with more risk than 3 traders who use other platforms. According to an analysis of new filings from nine brokerage firms 4 by the research firm Alphacution for The New York Times, in the first quarter of 2020, Robinhood 5 users traded nine times as many shares as E-Trade customers and 40 times as many shares as 6 Charles Schwab customers. They also bought and sold 88 times as many risky options contracts as 7 Schwab customers, relative to the average account size, according to the analysis. 21 8 9 10 11 12 13 14 15 16 17 18 47. According to Tim Welsh, founder and CEO of wealth management consulting firm 19 Nexus Strategy, "they should put a cigarette warning label on Robinhood, because it could be 20 hazardous to your financial health the more you trade. Every study on planet Earth has shown day 21 traders that are not sophisticated do not make money. They game-ify it, they throw confetti after 22 each trade, the make it 'free' but ultimately it's a losers game."22 23 Robinhood's Services and How it Makes Money 24 48. When a user opens an account with Robinhood, they enter into a Customer 25 20 Nathaniel Popper, Robinhood Has Lured Young Traders, Sometimes With Devastating Results, 26 The New York Times (July 8, 2020) https://www.nytimes.com/2020/07/08/technology/robinhood-risky- 27 trading.html?searchResultPosition=2 (last visited Aug. 19, 2020). 21 Id. 28 22 Id. - 10 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 Agreement with "Robinhood Financial LLC, Robinhood Securities, LLC, and their agents and 2 assigns." Prior to the Outages in March 2020, the Customer Agreement had most recently been 3 revised on February 5, 2020. After the March Outages, Robinhood revised its Customer Agreement 4 on April 28, 2020, and again on June 22, 2020. 5 49. Robinhood provides its users educational information with the tagline "Investing 6 can be complicated — that's why we're here. From beginners' guides to timely features, explore 7 articles that make finance a little more understandable." The information provided varies from 8 investment strategy for investors in their 20's, to basic information about the market and common 9 terms used in investing.23 Robinhood's interface also highlights particular stocks and "makes 10 suggestions to users on what to trade next."24 11 50. Robinhood offers a paid subscription product called "Gold." Users who purchase 12 Gold memberships pay $5 a month to have faster deposit processing, access to professional 13 research, the ability to see additional information about stock prices, and the ability to invest on 14 margin.25 15 51. Robinhood also makes money from "payment for order flow" fees. In fact, payment 16 for order flow fees are reportedly Robinhood's primary revenue stream—greatly exceeding what it 17 earns from Robinhood Gold, or from the interest it makes on cash balances in customer accounts, 18 which is another source of Robinhood's revenue. 19 52. Payment for order flow fees are paid to Robinhood from electronic market makers 20 for passing on customer orders. For example, if a Robinhood users purchase a share of Apple on 21 through their account, Robinhood sends that order to a large market maker like Citadel Securities 22 and receives a few pennies in return—i.e., the "payment for order flow" fees. Citadel, meanwhile, 23 24 23 25 See https://learn.robinhood.com/ (last visited Aug. 19, 2020). 24 Alicia Adamcyk, Trading Apps Like Robinhood Are Having A Moment. But Users Should Be 26 Careful, CNBC (Aug. 21, 2020), https://www.cnbc.com/2020/08/21/robinhood-is-having-a- moment-users-should-be-careful.html (last visited Aug. 21, 2020). 27 25 A margin account is a brokerage account in which the broker lends the investor money to buy 28 more securities than what they could otherwise buy with the balance in their account. - 11 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 completes the trade and makes a few pennies itself.26 2 53. For Robinhood, those fees add up. According to a recent SEC filing, Citadel 3 Securities and several other firms paid Robinhood nearly $100 million in the first quarter of 2020.27 4 And in the second quarter of 2020 — Robinhood made $180 million off trades, roughly double 5 from the prior quarter.28 6 The Outages 7 54. At 9:33 am29 the morning of March 2, 2020, a Monday and the first day of the month 8 for trading traditional securities, Robinhood's trading platform completely stopped functioning. As 9 a result, at that moment, the platform stopped processing orders entered by customers prior to the 10 Outage and customers were unable to enter new orders. The majority of users were also prevented 11 from accessing their account and funds altogether. Robinhood was unable to restore full 12 functionality until Tuesday, March 3, 2020 at 11:54 am. In total, Robinhood's systems were 13 nonfunctional or inaccessible to customers for 26 hours and 21 minutes. 14 55. At 11:02 am the morning of March 2, Robinhood publicly acknowledged the 15 16 17 18 19 20 21 22 26 23 Jeff John Roberts, David Z. Morris, Robinhood makes millions selling your stock trades … is that so wrong?, Fortune (July 8, 2020), https://fortune.com/2020/07/08/robinhood-makes- 24 millions-selling-your-stock-trades-is-that-so-wrong/ (last visited Aug. 19, 2020). 27 Id. 25 28 Kate Rooney, Maggie Fitzgerald, Here's how Robinhood is raking in record cash on customer 26 trades — despite making it free, CNBC (August 13, 2020), https://www.cnbc.com/2020/08/13/how-robinhood-makes-money-on-customer-trades- 27 despite-making-it-free.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail (last visited Aug. 19, 2020). 28 29 All times are Eastern Standard Time, unless otherwise indicated. - 12 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 "downtime" and impact on "all functionalities" of the platform on Twitter: 30 2 3 4 5 6 7 8 9 The Robinhood Help account (@AskRobinhood) is owned or controlled by Robinhood. 10 56. Around 4:00 pm on the afternoon of March 2, Robinhood emailed its customers 11 directly to repeat the substance of the message posted to Twitter earlier that morning, which was 12 that Robinhood was "experiencing downtime across [its] platform," that the outage was "affecting 13 functionality on Robinhood," and that the outage was affecting customers' "ability to trade": 14 Update on Robinhood System Status 15 16 This morning, starting at 9:33 AM ET, we started experiencing downtime across our platform. These issues are affecting functionality on Robinhood, including your 17 ability to trade. 18 All of us at Robinhood are working as hard as we can to resume service, and we'll update you as soon as the issue is resolved. We understand the impact this is having 19 and we apologize for any trouble this has caused. 20 Please check our status page at status.robinhood.com. Thank you for being a 21 Robinhood customer. 22 Sincerely, 23 The Robinhood Team robinhood.com 24 57. At 4:07 pm on March 2, immediately after emailing its customers, Robinhood 25 posted another message to Twitter publicly confirming that its platform was "still experiencing 26 27 30 Twitter, https://twitter.com/AskRobinhood/status/1234509495084240898 (last visited Aug. 19, 28 2020). - 13 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 system-wide issues" and that it had yet to "resume service":31 2 3 4 5 6 7 8 9 10 58. Early on March 3, 2020, at 2:19 am, Robinhood posted two messages to its Twitter 11 account reporting that its systems were "currently back up and running," that customers might 12 still "observe some downtime" as Robinhood prepared for the day, and acknowledging that "issues 13 like this are not acceptable":32 14 15 16 17 18 19 20 21 22 23 59. At about 2:45 am the morning of March 3, Robinhood sent another email to 24 customers saying directly to them what it had just said publicly, which was that its systems were 25 "currently back up and running," that the outage was "not acceptable," and that Robinhood 26 31 Twitter, https://twitter.com/AskRobinhood/status/1234586094395523074 (last visited Aug. 19, 27 2020). 32 Twitter, https://twitter.com/AskRobinhood/status/1234740273877405697 (last visited Aug. 19, 28 2020). - 14 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 realized that it had "let [customers] down": 2 Robinhood is currently back online 3 We're reaching out to let you know that Robinhood is currently back up and running. We want to assure you that your funds are safe and personal information was not 4 affected. 5 When it comes to your money, issues like this are not acceptable. We realize we 6 let you down, and our team is committed to improving your experience. 7 60. At 10:11 am on March 3, Robinhood reported, again through its public-facing 8 Twitter account, that its "systems are currently experiencing downtime" and that "full 9 functionality" of the Robinhood platform remained unavailable to customers: 33 10 11 12 13 14 15 16 61. At 11:35 am, later the morning of March 3, Robinhood stated on its Twitter account 17 that its service had "been partially restored" and that it was "working toward restoring and 18 maintaining full functionality."34 19 62. At 11:54 am on March 3, Robinhood reported that its systems had been "now 20 21 22 23 24 25 26 33 Twitter, https://twitter.com/AskRobinhood/status/1234859068763844613 (last visited Aug. 19, 27 2020). 34 Twitter, https://twitter.com/AskRobinhood/status/1234880124463435776 (last visited Aug. 19, 28 2020). - 15 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 fully restored", while noting that its users deserved better: 35 2 3 4 5 6 7 8 63. Also on March 3, a Robinhood spokesperson admitted that the cause of the Outage 9 was "instability in a part of our infrastructure that allows our systems to communicate with each 10 other." At some point later that day, Robinhood's systems were restored. 11 64. Later, in a blog post on Robinhood's website dated March 3, 2020, Robinhood's 12 founders stated: 13 Our team has spent the last two days evaluating and addressing this 14 issue. We worked as quickly as possible to restore service, but it took us a while. Too long. We now understand the cause of the outage was 15 stress on our infrastructure—which struggled with unprecedented load. That in turn led to a "thundering herd" effect—triggering a 16 failure of our DNS system. 17 Multiple factors contributed to the unprecedented load that 18 ultimately led to the outages. The factors included, among others, highly volatile and historic market conditions; record volume; and 19 record account sign-ups. 20 Our team is continuing to work to improve the resilience of our infrastructure to meet the heightened load we have been 21 experiencing. We're simultaneously working to reduce the 22 interdependencies in our overall infrastructure. We're also investing in additional redundancies in our infrastructure. 36 23 65. Notwithstanding Robinhood's explanations and apologies, its trading platform 24 crashed again the very next week. On March 9, 2020, Robinhood once again experienced outages 25 26 35 27 Twitter, https://twitter.com/AskRobinhood/status/1234884989189124096 (last visited Aug. 19, 2020). 28 36 See https://blog.robinhood.com/ (last visited Aug. 19, 2020). - 16 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 with customers unable to access their accounts and transact on the public markets.37 Services were 2 completely unavailable at the start of the trading day and not fully restored until more than five 3 hours later.38 4 66. As Robinhood admits, the Outages were a result of internal failures, not a result of 5 the overall market trading volume. On March 2, 2020, market data shows that on all U.S. exchanges 6 combined the volume of shares traded was 14,163,098,470 shares. On March 3, 2020, the volume 7 was 14,900,627,470 shares, and on March 9, 2020, the volume was 17,614,290,337 shares.39 While 8 these numbers are higher than average, they are not unheard of and are not records. Trading volume 9 on February 27 and February 28, 2020, just before the outage, far exceeded either March 2 or 3, 10 2020 with 15,821,612,374 and 19,357,141,449 shares trading hands each day, respectively. 11 February 28 was the second busiest day in history based on trading volume.40,41 12 67. Furthermore, twelve years ago, in 2008 during the market volatility surrounding the 13 financial crisis, there were two days on which trading volume was higher than the volume on any 14 of the dates Robinhood crashed. This includes the record for the highest trading volume on 15 October 10, 2008, at 19.76 billion shares.42 Trading volume of this magnitude was readily 16 foreseeable and Robinhood should have designed its system to handle it. 17 68. During the Outages, users were unable to contact Robinhood because Robinhood's 18 37 Jonathan Shieber, The Robinhood app went down again as stocks got routed on Wall St., 19 TechCrunch (Mar. 9, 2020), https://techcrunch.com/2020/03/09/the-robinhood-app-is-downagain- as-stocks-get-routed-on-wall-st/ (last visited Aug. 19, 2020). 20 38 Jay Peters, Robinhood experienced its third outage in a week as US stocks have plummeted, The Verge (March 9, 2020) 21 https://www.theverge.com/2020/3/9/21171584/robinhood-outage-week-us-stocks-third-market 22 (last visited Aug. 19, 2020). 39 See U.S. Equities Market Volume Summary, available at 23 https://markets.cboe.com/us/equities/market_share/market/2020-03-02/, https://markets.cboe.com/us/equities/market_share/market/2020-03-03/, 24 https://markets.cboe.com/us/equities/market_share/market/2020-03-09/. 40 See U.S. Equities Market Volume Summary, available at 25 https://markets.cboe.com/us/equities/market_share/market/2020-02-27/, 26 https://markets.cboe.com/us/equities/market_share/market/2020-02-28/. 41 Philip Stafford, Richard Henderson, Intense' trading sends exchange volumes to record, 27 Financial Times (https://www.ft.com/content/de34a00a-5ca4-11ea-8033-fa40a0d65a98 (last visited Aug. 19, 2020). 28 42 Id. - 17 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 customer support "Help Center" was down and completely useless. Customers were unable to 2 contact any Robinhood representative through email, and there was no active phone number for 3 customers to call. Robinhood users were powerless—wholly unable to access their accounts or 4 make trades to mitigate their damages. 5 69. In Robinhood Securities, LLC's 2020 Annual Audited Report, filed with the SEC 6 on April 13, 2020, Robinhood described the Outages: 7 On March 2-3, 2020, the Robinhood platform experienced an outage across various services, which prevented customers from using the app, website, and help center 8 and on March 9, 2020, the Robinhood platform experienced an outage across its trading products, which prevented customers from placing trades (collectively, the 9 "Outages"). The Company is currently in the process of investigating and evaluating 10 the impact of the Outages. There are many uncertainties associated with these types of incidents and possible impacts associated with service outages may include 11 remediation costs to customers, systems upgrades, increased insurance costs, adverse effects on compliance with laws and regulations, litigation, and reputational 12 damage. 13 70. As of July 2020, Robinhood's website had experienced 47 service outages since 14 March, including the nearly two-day outages on March 2 and 3, 2020. 15 71. The significant and repeated Outages immediately increased public scrutiny of 16 Robinhood. On July 8, 2020, the New York Times published an article profiling Robinhood.43 17 72. According to Robinhood employees quoted in the New York Times article, the 18 March 2-3 "outage was rooted in issues with the company's phone app and servers. The employees 19 also said the start-up had underinvested in technology and moved too quickly rather than carefully." 20 The same employees, who declined to be identified in the article, bluntly stated that "the company 21 failed to provide adequate guardrails and technology to support its customers." 44 22 23 24 25 43 26 Nathaniel Popper, Robinhood Has Lured Young Traders, Sometimes With Devastating Results, The New York Times (July 8, 2020) 27 https://www.nytimes.com/2020/07/08/technology/robinhood-risky- trading.html?searchResultPosition=2 (last visited Aug. 19, 2020). 28 44 Id. - 18 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 73. On March 23, 2020, Robinhood offered a credit to many of its users and apologized 2 for its recent multiple-day outages. Robinhood called the offer a "goodwill" credit. However, in 3 exchange for the voucher, and even though multiple class actions had been filed by investors 4 damaged by the Outages, the company required users to sign a document agreeing not to take legal 5 action.45 6 7 8 9 10 11 12 13 14 15 16 17 74. In the March 23, 2020, email to users Robinhood apologized, saying: "We'd like to start with the apology you deserve: We're sorry for the recent outage 18 on our platform. Your support is what helps us democratize finance for all, and we 19 know we owe it to you to do better," the company said in an email to some users. "An apology alone won't rebuild your trust in us. Instead, we hope our actions will." 20 75. The apologies have not been enough for users and many frustrated traders have 21 shown up at Robinhood's Silicon Valley headquarters. So many angry users have paid a visit to 22 the office that the stock-trading app reportedly installed protective "bulletproof" glass.46 23 24 45 Kate Rooney, Robinhood's offer to traders impacted by outage comes with a catch: No lawsuits 25 allowed, CNBC (March 27, 2020) https://www.cnbc.com/2020/03/27/robinhoods-offer-to- 26 traders-impacted-by-outage-come-with-a-catch.html (last visited Aug. 19, 2020). 46 Graham Rapier, Robinhood had to install protective glass after frustrated traders kept showing 27 up at its office, Business Insider (July 10, 2020) https://www.businessinsider.com/robinhood- office-installed-bulletproof-glass-after-frustrated-traders-visited-report-2020-7 (last visited Aug. 28 19, 2020). - 19 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 Regulatory Framework 2 76. As a broker-dealer, Robinhood is subject to various rules and regulations that impact 3 many aspects of its business. One requirement is that Robinhood must make, keep, furnish and 4 disseminate records and reports prescribed by the Securities and Exchange Commission ("SEC"). 5 FINRA also has specific recordkeeping rules for companies such as Robinhood. The records 6 Robinhood is required to keep, include but are not limited to, communications relating to their 7 "business as such," customer account ledgers, securities records, order tickets, and trade 8 confirmations.47 9 77. Additionally, under federal and state securities laws, securities industry rules, and 10 industry best practices, brokerage firms that offer online trading services to their customers are 11 required to, among other things, ensure that customers receive the best execution of trades and that 12 the firm has adequate operational capability to handle customer trading volume. As far back as 13 September 9, 1998, the U.S. Securities and Exchange Commission ("SEC") issued Staff Legal 14 Bulletin No. 8, after widespread brokerage firm outages and trading delays that had occurred in 15 October 1997. Among other admonishments, the SEC warned firms that: 16 Because broker-dealers are becoming increasingly reliant on technology to perform trading functions and to route customer orders to markets, these problems could be 17 more severe during future periods of high trading volume. Broker-dealers therefore need to take steps to prevent their operational systems from being overwhelmed by 18 periodic spikes in systems message traffic due to high volume. In particular, broker- 19 dealers should not merely have sufficient systems capacity to handle average-to- heavy loads. Rather, broker-dealers should have the systems capacity to handle 20 exceptional loads of several times the average trading volume.48 21 78. Brokerage firms were also reminded of these requirements by the National 22 Association of Securities Dealers ("NASD"), a self-regulatory organization that supervised broker- 23 dealers like Robinhood, in a 1999 Notice to Members ("NTM") 99-11, which stated that: "First 24 and foremost, NASD Regulation reminds member firms of their obligations under [SEC] Staff 25 Legal Bulletin No. 8 to ensure that they have adequate systems capacity to handle high volume or 26 27 47 See https://www.finra.org/rules-guidance/key-topics/books-records (last visited Aug. 19, 2020). 28 48 Available at: https://www.sec.gov/interps/legal/slbmr8.htm (last visited Aug. 19, 2020). - 20 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 high volatility trading days."49 2 79. Currently, FINRA, which superseded the NASD, and now governs brokers like 3 Robinhood, espouses rule 5310 regarding "Best Execution and Interpositioning." Rule 5310.01 4 requires that Robinhood "must make every effort to execute a marketable customer order that it 5 receives promptly and fully." By failing to respond at all to customers' placing timely trades, and 6 in fact, preventing them from doing so altogether, Robinhood has breached these obligations and 7 caused its customers substantial losses due solely to its own negligence and failure to maintain 8 adequate infrastructure. 9 80. In addition to best execution, Robinhood has a duty to develop, design, test, and 10 monitor its services; and to create and maintain a written business continuity plan identifying 11 procedure relating to an emergency or significant business disruption. Such procedures must be 12 reasonably designed to enable the company to meet its existing obligations to customers during an 13 emergency, such as an outage. Indeed, FINRA Rule 4370 requires such a business continuity plan 14 to, at minimum, address "mission critical systems." These systems are defined as "any system that 15 is necessary, depending on the nature of a member's business, to ensure prompt and accurate 16 processing of securities transactions, including, but not limited to, order taking, order entry, 17 execution, comparison, allocation, clearance and settlement of securities transactions, the 18 maintenance of customer accounts, access to customer accounts and the delivery of funds and 19 securities." FINRA Rule 4370(g)(1). 20 81. Robinhood's written business continuity plan that was in place at the time of the 21 March Outages, attached as Exhibit A was a one-page document with a section entitled "contact 22 us" where Robinhood provided the following: 23 If after a significant business disruption you cannot contact us as you usually do through our website robinhood.com or through our mobile applications, you should 24 call our emergency number in Menlo Park, CA at (844) 428-5411 or submit a ticket at support.robinhood.com. 25 26 However, during the Outages and since, there was no way to get in touch with a live person, and 27 the phone number provided was useless. Nevertheless, during the Outages, many Plaintiffs and 28 49 Available at: https://www.finra.org/rules-guidance/notices/99-11 (last visited Aug. 19, 2020). - 21 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 Class members attempted to seek support by calling the number provided by Robinhood, with no 2 success whatsoever. Plaintiffs also attempted to contact support.robinhood.com, again to no avail. 3 Emails were not responded to at all, or not for several days until long after the Outages had done 4 their damage. Additionally, during the Outages, attempts to contact Robinhood through its website 5 at robinhood.com were also futile as the website was completely down for the duration of the 6 Outages. Following the Outages, employees at Robinhood confirmed that the Company did not 7 offer any phone support. 8 82. Since the Outages, Robinhood has modified its business continuity plan—notably, 9 the phone number has now been removed and there are no references to phone support.50 10 Robinhood also deleted the following assurance: 11 Our business continuity plan addresses: data back-up and recovery; all mission critical systems; financial and operational assessments; alternative communications 12 with customers, employees, and regulators; alternate physical location of employees; critical supplier, contractor, bank and counter-party impact; regulatory 13 reporting; and assuring our customers prompt access to their funds and securities if 14 we are unable to continue our business. As an on-line broker-dealer, it also addresses the recovery of technology systems. In general, our technology systems are cloud- 15 hosted and at separate locations. This design ensures that if one of our locations suffers a disruption in service, systems at an alternate location can be used to 16 continue to provide service. 17 83. Robinhood's failure to have a proper business continuity plan, or any backup plan 18 whatsoever, was solely attributable to its own negligence. Additionally, by failing to timely execute 19 trades during the Outages, Robinhood violated FINRA Rule 2232 by failing to maintain accurate 20 records of accounts and trade confirmations (including attempted trades), and Rule 3120, by failing 21 to have a sufficient supervisory system to gain compliance with regulatory laws. 22 84. Robinhood has a history of breaching its legal obligations. Just a few months before 23 the outage, on December 19, 2019, FINRA announced it fined Defendant Robinhood Financial 24 $1.25 million for best execution violations related to its customers' equity orders and related 25 26 50 See current version of Robinhood Financial and Robinhood Securities Business Continuity 27 Plan Summary, available at https://cdn.robinhood.com/assets/robinhood/legal/RHS%20RHF%20Business%20Continuity%20 28 Plan.pdf (last visited Aug. 19, 2020). - 22 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 supervisory failures that spanned from October 2016 to November 2017.51 As part of the findings, 2 FINRA found that despite requirements to do so, Robinhood "did not have written procedures 3 related to or addressing how it performed its 'regular and rigorous' reviews or reviewed non- 4 marketable orders for best execution purposes." As part of the settlement, Robinhood agreed to 5 retain an independent consultant to conduct a comprehensive review of the firm's systems and 6 procedures related to best execution.52 7 85. Additionally, Robinhood has a history of failing to provide adequate service to its 8 customers, particularly those engaged in options trading. For example, a similar service outage 9 occurred on April 14, 2016, where users were unable to trade securities for an extended period and 10 their portfolios failed to accurately reflect their holdings.53 And in December 2018, 11 customers trading in options faced comparable outages and incurred significant trading losses, 12 similar to those affected during the Class Period.54 Again, in October of 2019, Robinhood suffered 13 multiple days of systemwide failures and outages.55 14 86. Despite those prior problems, Robinhood failed to remedy the flaws in its systems. 15 PLAINTIFFS' EXPERIENCES 16 Plaintiff Beckman 17 87. Plaintiff Beckman is a customer of Robinhood and entered into a Customer 18 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 19 88. Plaintiff Beckman subscribed to Robinhood's Gold. 20 89. On March 2, 2020, Plaintiff Beckman attempted to trade options, however, he was 21 prevented from making those trades as a result of the Outage. 22 51 See https://www.finra.org/media-center/newsreleases/2019/finra-fines-robinhood-financial-llc- 23 125-million-best-execution (last visited Aug. 19, 2020). 52 Id. at 6. 24 53 Lucinda Shen, A Glitch on This Stock Trading App Made Users Think They'd Lost Thousands of Dollars, Yahoo Finance (April 14, 2020) https://in.finance.yahoo.com/news/glitch-stock- 25 trading-app-made-192505186.html (last visited Aug.19, 2020). 54 26 Dan DeFrancesco, Robinhood's options trading stopped working, and customers are furious over the money they say they lost, Business Insider (Dec. 13, 2018), 27 https://www.businessinsider.com/robinhoods-options-trading-shutdown-and-customers-are- furious-2018-12 (last visited Aug. 19, 2020). 28 55 See https://status.robinhood.com/history?page=4. (last visited Aug. 19, 2020). - 23 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 90. Plaintiff Beckman attempted to contact Robinhood customer support but only 2 received unhelpful boilerplate responses or no response at all. 3 91. As a result of the Outages, Plaintiff Beckman estimates his losses are in excess of 4 $10,000. 5 Plaintiff Gwaltney 6 92. Plaintiff Gwaltney is a customer of Robinhood and entered into a Customer 7 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 8 93. Plaintiff Gwaltney subscribes to Robinhood's Gold. 9 94. On March 2, 2020, Plaintiff Gwaltney attempted to make trades, however, he was 10 prevented from making those trades as a result of the Outage. 11 95. On March 3, 2020, Plaintiff Gwaltney attempted to make trades, however, he was 12 prevented from making those trades as a result of the Outage. 13 96. On March 9, 2020, Plaintiff Gwaltney attempted to make trades, however, he was 14 prevented from making those trades as a result of the Outage. 15 97. Plaintiff Gwaltney attempted to contact Robinhood customer support but only 16 received unhelpful boilerplate responses or no response at all. 17 98. As a result of the Outages, Plaintiff Gwaltney estimates his losses are in excess of 18 $10,000. 19 Plaintiff Jones 20 99. Plaintiff Jones is a customer of Robinhood and entered into a Customer 21 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 22 100. Plaintiff Jones subscribes to Robinhood's Gold. 23 101. On March 2, 2020, Plaintiff Jones attempted to make trades, however, she was 24 prevented from making those trades as a result of the Outage. 25 102. Plaintiff Jones attempted to contact Robinhood customer support but only received 26 unhelpful boilerplate responses or no response at all. 27 103. As a result of the Outages, Plaintiff Jones estimates her losses are in excess of 28 $1,500. - 24 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 Plaintiff Kostenko 2 104. Plaintiff Kostenko is a customer of Robinhood and entered into a Customer 3 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 4 105. Plaintiff Kostenko subscribes to Robinhood's Gold. 5 106. On March 2, 2020, Plaintiff Kostenko attempted to place trades, however, he was 6 prevented from making those trades as a result of the Outage. 7 107. On March 3, 2020, Plaintiff Kostenko attempted to place trades, however, he was 8 prevented from making those trades as a result of the Outage. 9 108. Plaintiff Kostenko attempted to contact Robinhood customer support but only 10 received unhelpful boilerplate responses or no response at all. 11 109. As a result of the Outages, Plaintiff Kostenko estimates his losses are in excess of 12 $2,500. 13 Plaintiff Kuri 14 110. Plaintiff Kuri is a customer of Robinhood and entered into a Customer 15 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 16 111. On March 2, 2020, Plaintiff Kuri attempted to exercise options and make trades, 17 however, she was prevented from making those trades as a result of the Outage. 18 112. On March 3, 2020, Plaintiff Kuri attempted to exercise options and make trades, 19 however, she was prevented from making those trades as a result of the Outage. 20 113. Plaintiff Kuri attempted to contact Robinhood customer support but only received 21 unhelpful boilerplate responses or no response at all. 22 114. As a result of the Outages, Plaintiff Kuri estimates her losses are in excess of $3,000. 23 Plaintiff Leith 24 115. Plaintiff Leith is a customer of Robinhood and entered into a Customer 25 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 26 116. Plaintiff Leith subscribes to Robinhood's Gold. 27 117. On March 2, 2020, Plaintiff Leith attempted to exercise options, however, he was 28 prevented from making those trades as a result of the Outage. - 25 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 118. On March 3, 2020, Plaintiff Leith attempted to make trades, however, he was 2 prevented from making those trades as a result of the Outage. 3 119. On March 9, 2020, Plaintiff Leith attempted to make trades, however, he was 4 prevented from making those trades as a result of the Outage. 5 120. Plaintiff Leith attempted to contact Robinhood customer support but only received 6 unhelpful boilerplate responses or no response at all. 7 121. As a result of the Outages, Plaintiff Leith estimates his losses are in excess of $7,500. 8 Plaintiff Mahrouyan 9 122. Plaintiff Mahrouyan is a customer of Robinhood and entered into a Customer 10 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 11 123. Plaintiff Mahrouyan subscribes to Robinhood's Gold. 12 124. On March 2, 2020, Plaintiff Mahrouyan attempted to trade options, however, he was 13 prevented from making those trades as a result of the Outage. 14 125. On March 3, 2020, Plaintiff Mahrouyan attempted to trade options, however, he was 15 prevented from making those trades as a result of the Outage. 16 126. On March 9, 2020, Plaintiff Mahrouyan attempted to trade options, however, he was 17 prevented from making those trades as a result of the Outage. 18 127. Plaintiff Mahrouyan attempted to contact Robinhood customer support but only 19 received unhelpful boilerplate responses or no response at all. 20 128. As a result of the Outages, Plaintiff Mahrouyan estimates his losses are in excess of 21 $50,000. 22 Plaintiff Moghadam 23 129. Plaintiff Moghadamis a customer of Robinhood and entered into a Customer 24 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 25 130. Plaintiff Moghadam subscribes to Robinhood's Gold. 26 131. On March 2, 2020, Plaintiff Moghadam attempted to make trades, however, he was 27 prevented from making those trades as a result of the Outage. 28 132. On March 9, 2020, Plaintiff Moghadam attempted to make trades, however, he was - 26 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 prevented from making those trades as a result of the Outage. 2 133. As a result of the Outages, Plaintiff Moghadam estimates his losses are in excess of 3 $20,000. 4 134. Moreover, as a result of the losses due to the Outages, Plaintiff Moghadam account 5 value fell far below $25,000, which is the minimum amount required for day trading. As a result, 6 Plaintiff Moghadam had to borrow from and pay interest to a lender to reach the minimum for day 7 trading, which resulted in further losses. 8 Plaintiff Morey 9 135. Plaintiff Morey is a customer of Robinhood and entered into a Customer Agreement, 10 as discussed further below, in order to use Robinhood's online trading systems. 11 136. Plaintiff Morey subscribes to Robinhood's Gold. 12 137. On March 2, 2020, Plaintiff Morey attempted to make trades, however, he was 13 prevented from making those trades as a result of the Outage. 14 138. On March 3, 2020, Plaintiff Morey attempted to make trades, however, he was 15 prevented from making those trades as a result of the Outage. 16 139. On March 9, 2020, Plaintiff Morey attempted to make trades, however, he was 17 prevented from making those trades as a result of the Outage. 18 140. Plaintiff Morey attempted to contact Robinhood customer support but only received 19 unhelpful boilerplate responses or no response at all. 20 141. As a result of the Outages, Plaintiff Morey estimates his losses are in excess of 21 $10,000. 22 Plaintiff Prendergast 23 142. Plaintiff Prendergast is a customer of Robinhood and entered into a Customer 24 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 25 143. On March 2, 2020, Plaintiff Prendergast attempted to exercise options, however, he 26 was prevented from making those trades as a result of the Outage. 27 144. Plaintiff Prendergast attempted to contact Robinhood customer support but only 28 received unhelpful boilerplate responses or no response at all. - 27 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 145. As a result of the Outages, Plaintiff Prendergast estimates his losses are in excess of 2 $30,000. 3 Plaintiff Rao 4 146. Plaintiff Rao is a customer of Robinhood and entered into a Customer Agreement, 5 as discussed further below, in order to use Robinhood's online trading systems. 6 147. Plaintiff Rao subscribes to Robinhood's Gold. 7 148. On March 2, 2020, Plaintiff Rao attempted to place trades, however, he was 8 prevented from making those trades as a result of the Outage. 9 149. Plaintiff Rao attempted to contact Robinhood customer support but only received 10 unhelpful boilerplate responses or no response at all. 11 150. As a result of the Outages, Plaintiff Rao estimates his losses are in excess of $49,000. 12 151. As a consequence of Plaintiff Rao's losses due to the Outage, Robinhood forcibly 13 liquidated some of Plaintiff Rao's positions due to a margin call. Plaintiff Rao suffered significant 14 losses as a result. 15 Plaintiff Riggs 16 152. Plaintiff Riggs is a customer of Robinhood and entered into a Customer Agreement, 17 as discussed further below, in order to use Robinhood's online trading systems. 18 153. On March 2, 2020, Plaintiff Riggs attempted to make trades, however, he was 19 prevented from making those trades as a result of the Outage. 20 154. Plaintiff Riggs attempted to contact Robinhood customer support but only received 21 unhelpful boilerplate responses or no response at all. 22 155. As a result of the Outages, Plaintiff Riggs estimates his losses are in excess of 23 $10,000. 24 Plaintiff Russell 25 156. Plaintiff Russell is a customer of Robinhood and entered into a Customer 26 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 27 157. On March 2, 2020, Plaintiff Russell attempted to make trades, however, he was 28 prevented from making those trades as a result of the Outage. - 28 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 158. On March 3, 2020, Plaintiff Russell attempted to make trades, however, he was 2 prevented from making those trades as a result of the Outage. 3 159. As a result of the Outages, Plaintiff Russell estimates his losses are in excess of 4 $1,000. 5 Plaintiff Steinberg 6 160. Plaintiff Steinberg is a customer of Robinhood and entered into a Customer 7 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 8 161. Plaintiff Steinberg subscribes to Robinhood's Gold. 9 162. On March 2, 2020, Plaintiff Steinberg attempted to trade options, however, he was 10 prevented from making those trades as a result of the Outage. 11 163. On March 3, 2020, Plaintiff Steinberg attempted to trade options, however, he was 12 prevented from making those trades as a result of the Outage. 13 164. Plaintiff Steinberg attempted to contact Robinhood customer support but only 14 received unhelpful boilerplate responses or no response at all. 15 165. As a result of the Outages, Plaintiff Steinberg estimates his losses are in excess of 16 $1,000. 17 Plaintiff Ward 18 166. Plaintiff Ward is a customer of Robinhood and entered into a Customer 19 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 20 167. On March 2, 2020, Plaintiff Ward attempted to make trades, however, he was 21 prevented from making those trades as a result of the Outage. 22 168. On March 3, 2020, Plaintiff Ward attempted to make trades, however, he was 23 prevented from making those trades as a result of the Outage. 24 169. Plaintiff Ward attempted to contact Robinhood customer support but only received 25 unhelpful boilerplate responses or no response at all. 26 170. As a result of the Outages, Plaintiff Ward estimates his losses are in excess of 27 $15,000. 28 - 29 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 Plaintiff Xia 2 171. Plaintiff Xia is a customer of Robinhood and entered into a Customer 3 Agreement, as discussed further below, in order to use Robinhood's online trading systems. 4 172. On March 2, 2020, Plaintiff Xia attempted to make trades, however, she was 5 prevented from making those trades as a result of the Outage. 6 173. On March 3, 2020, Plaintiff Xia attempted to make trades, however, she was 7 prevented from making those trades as a result of the Outage. 8 174. Plaintiff Xia attempted to contact Robinhood customer support but only received 9 unhelpful boilerplate responses or no response at all. 10 175. As a result of the Outages, Plaintiff Xia estimates her losses are in excess of $15,000. 11 CLASS ACTION ALLEGATIONS 12 176. Plaintiffs bring claims pursuant to Federal Rule of Civil Procedure 23 on behalf of 13 the following Class, as defined below: 14 All Robinhood customers within the United States.56 15 177. Additionally, or in the alternative, Plaintiffs may also bring claims pursuant to 16 Federal Rule of Civil Procedure 23 on behalf of the following Subclasses, as defined below: 17 Gold Subclass: All Robinhood customers within the United States 18 who were subscribers to Robinhood's Gold membership service during the 19 Outages. 20 Options Subclass: All Robinhood customers within the United States who owned a position in an option contract during the Outages. 21 Margin Subclass: All Robinhood customers within the United States 22 who had margin accounts during the Outages. 23 178. Excluded from the Class57 are the Robinhood entities and their current employees, 24 counsel for either party as well as their immediate families, as well as the Court and its personnel 25 56 26 The "Class Period" for each claim is provisionally intended to be the respective statute of limitations for each claim, with Plaintiff reserving the right to invoke the equitable tolling 27 doctrine based on the discovery rule or other bases as discovery and the case progresses. 57 The term "Class" as used throughout includes both the Class and Subclasses unless otherwise 28 specified. - 30 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 presiding over this action. 2 179. This action has been brought and may properly be maintained as a class action 3 against Robinhood pursuant to the provisions of Federal Rule of Civil Procedure 23. 4 180. Numerosity: The precise number of members of the proposed Class is unknown to 5 Plaintiffs at this time, but, based on information and belief, Class members are so numerous that 6 their individual joinder herein is impracticable. Based on information and belief and publicly 7 available reports, Class members number in the hundreds of thousands and likely are many million. 8 Subclass members are likely in the tens or hundreds of thousands. All Class members may be 9 notified of the pendency of this action by reference to Robinhood's records, publication notice, or 10 by other alternative means. 11 181. Commonality: Numerous questions of law or fact are common to the claims of 12 Plaintiffs and members of the proposed Class. These common questions of law and fact exist as to 13 all Class members and predominate over questions affecting only individual Class members. These 14 common legal and factual questions include, but are not limited to the following: 15 a. How and why the Outages occurred; 16 b. Whether Robinhood's infrastructure was adequate; 17 c. Whether Robinhood maintained adequate business continuation and contingency 18 plans to provide financial services during the Outages; 19 d. Whether Robinhood complied with its legal, regulatory, and licensing requirements; 20 e. Whether Robinhood's conduct is governed by California law; 21 f. Whether Robinhood's conduct in connection with the Outages was negligent (or 22 grossly negligent); 23 g. Whether Robinhood breached its fiduciary duties to Plaintiffs and Class members; 24 h. Whether Robinhood has breached (and continues to breach) its contracts with 25 Robinhood customers and/or the implied covenant of good faith and fair dealing; 26 i. Whether Robinhood's conduct violates California's Unfair Competition Law, Bus. 27 & Prof. Code Section 17200, et seq.; 28 j. Whether Robinhood was unjustly enriched by its conduct; - 31 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 k. Whether Plaintiffs and the other Class members were injured by Robinhood's 2 conduct, and if so, the appropriate measure of damages, restitution, disgorgement 3 and other monetary relief; and 4 l. Whether Plaintiffs and the other Class members are entitled to injunctive and 5 declaratory relief. 6 182. Typicality: The claims of the named Plaintiffs are typical of the claims of the 7 proposed Class in that the named Plaintiffs were all Robinhood customers during the Outages, have 8 sustained damages and other harms as a result of the Outages, and are at continuing risk of further 9 harm due to Robinhood's conduct. 10 183. Adequate Representation: Plaintiffs will fairly and adequately represent the 11 interests of the Class in that they have no conflicts with any other Class members. Plaintiffs have 12 retained competent counsel experienced in prosecuting complex class actions, including those 13 involving technology and financial services, and they will vigorously litigate this class action. 14 184. Predominance and Superiority: There is no plain, speedy, or adequate remedy 15 other than by maintenance of this class action. A class action is superior to other available means, 16 if any, for the fair and efficient adjudication of this controversy. Prosecution of separate actions by 17 individual Class members would create the risk of inconsistent or varying adjudications, 18 establishing incompatible standards of conduct for the Defendant. Additionally, given the amount 19 of damages sustained by most individual Class members, few proposed Class members could or 20 would sustain the economic burden of pursuing individual remedies for Robinhood's wrongful 21 conduct. Treatment as a class action will achieve substantial economies of time, effort, and expense, 22 and provide comprehensive and uniform supervision by a single court. This class action presents 23 no material difficulties in management. 24 185. Class certification is warranted under Fed. R. Civ P. 23(b)(1)(A) because the 25 prosecution of separate actions by individual members of the proposed Class would create a risk of 26 inconsistent or varying adjudications with respect to individual Class members, which may produce 27 incompatible standards of conduct for Robinhood. 28 186. Class certification is warranted under Fed. R. Civ P. 23(b)(1)(B) because the - 32 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 prosecution of separate actions by individual members of the proposed Class would create a risk of 2 adjudications with respect to individual Class members which may, as a practical matter, be 3 dispositive of the interests of the other members not parties to the adjudications or substantially 4 impair or impede their ability to protect their interests. 5 187. The prerequisites to maintaining a class action for injunctive or equitable relief 6 pursuant to Fed. R. Civ. P. 23(b)(2) are met as Robinhood has acted or refused to act on grounds 7 generally applicable to the Class, thereby making final injunctive, declaratory, or equitable relief 8 appropriate with respect to the Class as a whole. 9 188. Class certification is also warranted under Fed. R. Civ P. 23(b)(3) because questions 10 of law or fact common to the Class members predominate over any questions affecting only 11 individual members, and a Class action is superior to other available remedies for the fair and 12 efficient adjudication of this controversy. The amount of damages available to the individual 13 Plaintiffs is insufficient to make litigation addressing Robinhood's conduct economically feasible 14 for most in the absence of the class action procedure. Individualized litigation also presents a 15 potential for inconsistent or contradictory judgments, and increases the delay and expense to all 16 parties and the court system presented by the legal and factual issues of the case. By contrast, the 17 class action device presents far fewer management difficulties and provides the benefits of a single 18 adjudication, economy of scale, and comprehensive supervision by a single court. 19 189. Class certification is also warranted under Fed. R. Civ P. 23(c)(4) because questions 20 of law or fact common to the Class members may be certified and decided by this Court on a class 21 wide basis. As indicated above, subclasses pursuant to Fed. R. Civ. P. 23(c)(5) may be warranted. 22 CLAIMS FOR RELIEF58 23 COUNT I 24 Negligence 25 190. Plaintiffs hereby incorporate by reference the factual allegations contained herein. 26 191. As a provider of financial services and registered securities investment broker- 27 dealer, Robinhood had a duty to exercise reasonable care, skill, and ability in conducting and 28 58 All Counts are alleged against each Defendant unless otherwise specified. - 33 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 facilitating financial services and transactions for its customers. 2 192. Robinhood unlawfully breached its duties by, among other things, failing to 3 maintain a reliably functioning electronic trading platform with sufficient operating capability and 4 adequate infrastructure to process customer transactions, including during volatile and high-volume 5 trading sessions; by failing to adequately design, test, and monitor its infrastructure necessary to 6 timely process customers' transactions; by failing to provide timely access to trading services 7 during the Outages; by failing to timely process securities trades, including taking orders, entering 8 orders, and executing orders; by failing to keep records of trades (including attempted trades); by 9 failing to provide timely access to customers' accounts, securities and funds; by failing to have a 10 supervisory control system that would have identified and prevented the Outages; by failing to have 11 adequate business contingency and continuity plans to ensure timely service in the event of an 12 outage; by failing to have any back-up plans to receive and process customers' orders during the 13 Outages; by having no adequate means for customers to get assistance during the Outages; by 14 failing to comply with applicable legal regulatory requirements and industry standards of care, 15 including those set by FINRA and its predecessor authorities; and by making unauthorized 16 transactions on customers' accounts. 17 193. As set forth below, Robinhood's conduct was so want of even scant care that its acts 18 and omissions were and continue to be an extreme departure from the ordinary standard of conduct, 19 rendering Robinhood not just negligent, but grossly negligent. 20 194. Robinhood's negligence and breaches of its duties owed to Plaintiffs and Class 21 members proximately caused losses and damages that would not have occurred but for Robinhood's 22 breach of its duty of due care. These losses reflect damages to Plaintiffs and Class members in an 23 amount to be determined at trial. COUNT II 24 25 Gross Negligence 195. Plaintiffs hereby incorporate by reference the factual allegations contained herein. 26 196. As a provider of financial services and registered securities investment broker- 27 dealer, Robinhood had a duty to exercise reasonable care, skill, and ability in conducting and 28 - 34 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 facilitating financial services and transactions for its customers. 2 197. Robinhood unlawfully breached its duties by, among other things, failing to 3 maintain a reliably functioning electronic trading platform with sufficient operating capability and 4 adequate infrastructure to process customer transactions, including during volatile and high-volume 5 trading sessions; by failing to adequately design, test, and monitor its infrastructure necessary to 6 timely process customers' transactions; by failing to provide timely access to trading services 7 during the Outages; by failing to timely process securities trades, including taking orders, entering 8 orders, and executing orders; by failing to keep records of trades (including attempted trades); by 9 failing to provide timely access to customers' accounts, securities and funds; by failing to have a 10 supervisory control system that would have identified and prevented the Outages; by failing to have 11 adequate business contingency and continuity plans to ensure timely service in the event of an 12 outage; by failing to have any back-up plans to receive and process customers' orders during the 13 Outages; by having no adequate means for customers to get assistance during the Outages; by 14 failing to comply with applicable legal regulatory requirements and industry standards of care, 15 including those set by FINRA and its predecessor authorities; and by making unauthorized 16 transactions on customers' accounts. 17 198. Robinhood's conduct as set forth in this Complaint was want of even scant care and 18 its acts and omissions were and continue to be an extreme departure from the ordinary standard of 19 conduct. Indeed, Robinhood essentially abandoned its customers altogether during the Outages, a 20 standard of care so far below what is required for business engaging in time sensitive financial 21 services that it amounts to a complete abandonment of its duties. Moreover, Robinhood continues 22 to experience regular outages which indicates that it has failed to implement adequate 23 infrastructure, is still not compliant with applicable regulatory authorities, still has no meaningful 24 business contingency or continuity plan, and still has no backup system for customers to access 25 their accounts and execute timely transactions and trades. Robinhood's reckless disregard for its 26 customers continues to fall so far below the standard of care required of it that it constitutes gross 27 negligence. 28 199. Robinhood's gross negligence and breaches of its duties owed to Plaintiffs and Class - 35 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 members proximately caused their losses and damages that they would not have occurred but for 2 Robinhood's gross breaches of its duty of due care. These losses reflect damages to Plaintiffs and 3 Class members in an amount to be determined at trial. 4 COUNT III 5 Breach of Fiduciary Duty 6 200. Plaintiffs hereby incorporate by reference the factual allegations contained herein. 7 201. As a provider of financial services and a registered securities investment broker- 8 dealer, at all times relevant herein Robinhood was a fiduciary to Plaintiffs and Class members and 9 owed them the highest good faith and integrity in performing its financial services and acting as a 10 securities broker-dealer on their behalf. As a broker-dealer, Robinhood provides securities trading 11 services by taking, entering, and executing orders, provides information and advice to customers 12 on investments and investment strategies (although it disclaims doing so), and even executes 13 transactions within their accounts when not specifically requested by investors. 14 202. Robinhood also maintains discretionary control over customer accounts as 15 commemorated in its Customer Agreement, and takes commissions for exercising such 16 discretionary actions (attached as Exhibits B, C & D.): 17 Robinhood may, but are not obligated to, notify Me of any upcoming expiration or redemption dates, or take any action on My behalf without My specific instructions 18 except as required by law and the rules of regulatory authorities. I acknowledge that Robinhood may adjust My Account to correct any error. If My Account has an 19 option position on the last trading day prior to expiration, which is one cent or more 20 in the money, Robinhood Financial will generally exercise the option, on My behalf. However, Robinhood Financial reserves the right at Its discretion to close any option 21 position prior to expiration date or any position resulting from the exercising/assignment after option expiration. I will be charged a commission for 22 any such transaction. 23 Robinhood also may "in its sole discretion" buy or sell securities and liquidate accounts in any 24 circumstance, whatsoever, "including, but not limited to" certain enumerated events such as having 25 insufficient funds. Accordingly, Robinhood expressly assumes all the fiduciary responsibilities 26 associated with its retention of discretion to exercise trades and other transactions with or without 27 customer direction. 28 - 36 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 203. Additionally, because Robinhood provides securities trading services through web 2 and app-based services, it maintains a specific fiduciary duty to ensure such web and app-based 3 services are fundamentally reliable and unlikely to malfunction and cause their customers harm and 4 damages, particularly when Robinhood also does not maintain adequate infrastructure and back-up 5 services or other means to take timely actions on accounts in the event of an outage. 6 204. Robinhood breached its fiduciary duties to Plaintiffs and Class members by, among 7 other things, failing to maintain a reliably functioning electronic trading platform with sufficient 8 operating capability and adequate infrastructure to process customer transactions, including during 9 volatile and high-volume trading sessions; by failing to adequately design, test, and monitor its 10 infrastructure necessary to timely process customers' transactions; by failing to provide timely 11 access to trading services during the Outages; by failing to timely process securities trades, 12 including taking orders, entering orders, and executing orders; by failing to keep records of trades 13 (including attempted trades); by failing to provide timely access to customers' accounts, securities 14 and funds; by failing to have a supervisory control system that would have identified and prevented 15 the Outages; by failing to have adequate business contingency and continuity plans to ensure timely 16 service in the event of an outage; by failing to have any back-up plans to receive and process 17 customers' orders during the Outages; by having no adequate means for customers to get assistance 18 during the Outages; by failing to comply with applicable legal regulatory requirements and industry 19 standards of care, including those set by FINRA and its predecessor authorities; and by making 20 unauthorized transactions on customers' accounts. 21 205. Robinhood's conduct has caused Plaintiffs' and Class members' harm, losses, and 22 damages and continues to expose them to harm because Robinhood continues to breach its fiduciary 23 duties. These losses reflect damages to Plaintiffs and Class members in an amount to be determined 24 at trial. 25 COUNT IV 26 Breach of Contract 27 (Alleged solely against Defendants Robinhood Financial and Robinhood Securities) 28 206. Plaintiffs hereby incorporate by reference the factual allegations contained herein. - 37 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 207. In order to use the Robinhood trading platform, a potential customer must enter into 2 the Customer Agreement with Robinhood. The operative Customer Agreement at the time of the 3 Outages, is attached as Exhibit B. Since the Outages, Robinhood has twice amended the operative 4 Customer Agreement. The April 28, 2020 Customer Agreement is attached as Exhibit C and the 5 June 22, 2020 Customer Agreement is attached as Exhibit D. Each of these Customer Agreements 6 mandates that Robinhood's accounts and trading activities will be subject to all applicable state and 7 federal laws and regulations, including those set by self-regulatory organizations. See, e.g., Ex. B 8 at ¶ 11. Each Customer Agreement also selects California choice of law to apply. Id. at ¶ 36. 9 Additionally, Robinhood's customers who are Gold members are subject to the Gold User 10 Agreement attached as Exhibit E, Robinhood's customers who trade on margin are subject to the 11 Margin and Short Account Agreement attached as Exhibit F, and Robinhood's customers who 12 trade options are subject to the Options Agreement attached as Exhibit G. Most of the contracts 13 expressly refer and incorporate each others' terms by reference, including by hyperlink. See, e.g., 14 Exhibit F, at p. 7, ¶ 17. All Robinhood customers are also subject to the Robinhood Terms & 15 Conditions, a copy of which is attached as Exhibit H, and Robinhood's Business Continuity Plan 16 Summary is attached as Exhibit I. Each of these standardized agreements are contracts of adhesion 17 that are imposed on Robinhood's customers as conditions of use and are not subject to negotiation. 18 208. Robinhood furnished consideration to Plaintiffs and Class members in the form of 19 access to Robinhood's online trading platform, enabling them to trade securities and options listed 20 on U.S. securities exchanges. In exchange, Robinhood received consideration from Plaintiff and 21 Class members including, but not limited to, order flow data, which it sold to market makers to 22 generate revenue, interest generated on cash balances in accounts, commissions and fees based on 23 trades placed, interest on margin extensions, and fees for Gold Membership access. 24 209. Robinhood breached its contracts with customers by failing to perform under the 25 contracts entirely, and by, among other things, failing to maintain a reliably functioning electronic 26 trading platform with sufficient operating capability and adequate infrastructure to process 27 customer transactions, including during volatile and high-volume trading sessions; by failing to 28 adequately design, test, and monitor its infrastructure necessary to timely process customers' - 38 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 transactions; by failing to provide timely access to trading services during the Outages; by failing 2 to timely process securities trades, including taking orders, entering orders, and executing orders; 3 by failing to keep records of trades (including attempted trades); by failing to provide timely access 4 to customers' accounts, securities and funds; by failing to have a supervisory control system that 5 would have identified and prevented the Outages; by failing to have adequate business contingency 6 and continuity plans to ensure timely service in the event of an outage; by failing to have any back- 7 up plans to receive and process customers' orders during the Outages; by having no adequate means 8 for customers to get assistance during the Outages; by failing to comply with applicable legal 9 regulatory requirements and industry standards of care, including those set by FINRA and its 10 predecessor authorities; and by making unauthorized transactions on customers' accounts. 11 210. Robinhood's Customer Agreement purports to limit liability for "temporary" service 12 interruptions due to events like maintenance, but it specifically distinguishes that purported 13 limitation of liability from the circumstances that led to the lengthy Outages which were attributable 14 solely to Robinhood's conduct: "I agree that Robinhood will not be responsible for temporary 15 interruptions in service due to maintenance, Website or App changes, or failures, nor shall 16 Robinhood be liable for extended interruptions due to failures beyond our control, including but 17 not limited to the failure of interconnecting and operating systems, computer viruses, forces of 18 nature, labor disputes and armed conflicts." See, e.g., Ex. B at ¶ 17. As Robinhood admitted both 19 during and after the extended Outages, they were not attributable to "failures beyond our control" 20 but the lack of adequate infrastructure, foresight, and planning. The Outages at issue in this case 21 were foreseeable and preventable, and in breach of the parties' agreements. 22 211. Robinhood's failure to perform and its breaches of the Customer Agreement and 23 applicable contracts resulted in damages and losses to Plaintiffs and Class members and continues 24 to expose them to harm because Robinhood continues to fail to perform under the Customer 25 Agreement. These losses reflect damages to Plaintiffs and Class members in an amount to be 26 determined at trial. 27 212. Additionally, because damages may not be a full and complete remedy due to the 28 ongoing nature of the relationship between the parties and the continuing risk of future harm, - 39 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 Plaintiffs and Class members seek specific performance of the contracts to ensure Robinhood has 2 sufficient infrastructure to manage their accounts and trading activity in the future. 3 COUNT V 4 Breach of the Implied Covenant of Good Faith and Fair Dealing 5 (Alleged solely against Robinhood Financial and Robinhood Securities) 6 213. Plaintiffs hereby incorporate by reference the factual allegations contained herein. 7 214. As set forth above, Plaintiffs, Class members and Robinhood are parties to the 8 Customer Agreement and related contracts. 9 215. Robinhood unfairly interfered with Plaintiffs' and Class members' rights to receive 10 the benefits of the Customer Agreement and related contracts by, failing to perform under the 11 contracts entirely, and by, among other things, failing to maintain a reliably functioning electronic 12 trading platform with sufficient operating capability and adequate infrastructure to process 13 customer transactions, including during volatile and high-volume trading sessions; by failing to 14 adequately design, test, and monitor its infrastructure necessary to timely process customers' 15 transactions; by failing to provide timely access to trading services during the Outages; by failing 16 to timely process securities trades, including taking orders, entering orders, and executing orders; 17 by failing to keep records of trades (including attempted trades); by failing to provide timely access 18 to customers' accounts, securities and funds; by failing to have a supervisory control system that 19 would have identified and prevented the Outages; by failing to have adequate business contingency 20 and continuity plans to ensure timely service in the event of an outage; by failing to have any back- 21 up plans to receive and process customers' orders during the Outages; by having no adequate means 22 for customers to get assistance during the Outages; by failing to comply with applicable legal 23 regulatory requirements and industry standards of care, including those set by FINRA and its 24 predecessor authorities; and by making unauthorized transactions on customers' accounts. 25 216. Robinhood's conduct has breached the implied covenant of good faith and fair 26 dealing because it has caused Plaintiffs and Class members' harm, losses, and damages, and 27 continues to expose them to harm because Robinhood continues to fail to perform under the 28 Customer Agreement. These losses reflect damages to Plaintiffs and Class members in an amount - 40 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 to be determined at trial. 2 217. Additionally, because damages may not be a full and complete remedy due to the 3 ongoing nature of the relationship between the parties and the continuing risk of future harm, 4 Plaintiffs and Class members seek specific performance of the contracts to ensure Robinhood has 5 sufficient infrastructure to manage their accounts and trading activity in the future. 6 COUNT VI 7 Violation of California Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200, et seq. 8 218. Plaintiffs hereby incorporate by reference the factual allegations contained herein. 9 219. Robinhood has engaged in unfair competition within the meaning of California 10 Business & Professions Code section 17200, et seq., because Robinhood's conduct is unlawful and 11 unfair as herein alleged. 12 220. Plaintiffs, the members of the Class, and Robinhood are a "person" or "persons," 13 within the meaning of Section 17201 of the California Unfair Competition Law ("UCL"). 14 221. The UCL prohibits any unlawful and unfair business practices or acts. Robinhood's 15 conduct, as alleged herein, constitutes an unlawful and unfair business practice that occurred in 16 connection with the provision of its financial and investment broker services. 17 222. Unlawful prong: Robinhood's conduct, as described within, violated the UCL's 18 unlawful prong because it: (1) constitutes negligence and/or gross negligence; (2) constitutes a 19 breach of fiduciary duty; (3) constitutes a breach of contract and/or a breach of the implied covenant 20 of good faith and fair dealing; (4) it violated applicable regulatory laws and guidance such as the 21 SEC's Staff Legal Bulletin No. 8 and the NASD's Notice to Members ("NTM") 99-11 that required 22 broker-dealers to have sufficient technological trading capacity over 20 years ago, FINRA Rule 23 2232 by failing to maintain accurate records of accounts and trade confirmations (including 24 attempted trades), Rule 3120, by failing to have a sufficient supervisory system to gain compliance 25 with regulatory laws, Rule 4370 which requires Robinhood to have a contingency plan in the case 26 of emergency or business disruption, and Rule 5310 which requires best execution of orders fully 27 and promptly; and (5) has unlawfully and unjustly enriched Robinhood. 28 223. Unfair prong: Robinhood's conduct, as described within, violated the UCL's - 41 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 unfair prong because its conduct violates established public policy intended to regulate financial 2 services to consumers, and because it is immoral, unethical, oppressive, or unscrupulous and has 3 caused injuries to the Plaintiffs and the Class that outweigh any purported benefit. The utility of 4 Robinhood's conduct in failing to maintain and implement adequate infrastructure and by breaching 5 its duties and obligations to Plaintiffs and Class members is far outweighed by the gravity of harm 6 to consumers who have now incurred losses and damages they would not have otherwise. 7 224. Plaintiffs have standing to pursue this claim because they have been injured by 8 virtue of suffering a loss of money and/or property as a result of the wrongful conduct alleged 9 herein. 10 225. The UCL is, by its express terms, a cumulative remedy, such that remedies under its 11 provisions can be awarded in addition to those provided under separate statutory schemes and/or 12 common law remedies, such as those alleged in the other Counts of this Complaint. See Cal. Bus. 13 & Prof. Code § 17205. 14 226. As a direct and proximate cause of Robinhood's conduct, which constitutes 15 unlawful and unfair business practices, as herein alleged, Plaintiffs and Class members have been 16 damaged and suffered ascertainable losses, thereby entitling them to recover restitution and 17 equitable relief, including disgorgement or ill-gotten gains, refunds of moneys, interest, reasonable 18 attorneys' fees, filing fees, and the costs of prosecuting this class action, as well as any and all other 19 relief that may be available at law or equity. Additionally, because Plaintiffs and Class members 20 continue to have accounts and investments with Robinhood and intend to use Robinhood's services 21 in the future, injunctive relief is warranted. 22 COUNT VII 23 Unjust Enrichment 24 227. Plaintiffs hereby incorporate by reference the factual allegations contained herein. 25 228. By its wrongful conduct described herein, Robinhood has obtained a benefit from 26 Plaintiffs and Class members that includes, but is not limited to, maintaining their accounts, 27 receiving their personal data, receiving payments for order flow, maintaining deposited funds, 28 charging and/or receiving interest on accounts and margin balances, charging and/or receiving fees, - 42 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 commissions and Gold Membership fees, and increased capital fundraising due to the high number 2 of new and continuing users of its platform, which also drives up Robinhood's valuation. 3 229. Since Robinhood's profits, benefits, and other compensation were obtained by 4 improper means, Robinhood was unjustly enriched at the expense of Plaintiffs and Class members 5 and is not legally or equitably entitled to retain any of the benefits, compensation or profits it 6 realized. 7 230. Plaintiffs and Class members seek an order of this Court requiring Robinhood to 8 refund, disgorge, and pay as restitution any profits, benefits, and other compensation obtained by 9 Robinhood from its wrongful conduct and/or the establishment of a constructive trust from which 10 Plaintiffs and Class members may seek restitution. 11 COUNT VIII 12 Declaratory Relief 13 231. Plaintiffs hereby incorporate by reference the factual allegations contained herein. 14 232. Under the Declaratory Judgment Act, 28 U.S.C. §§ 2201 et seq., this Court is 15 authorized to enter a judgment declaring the rights and legal relations of the parties and grant further 16 necessary relief. Furthermore, the Court has broad authority to restrain acts, such as here, which 17 are tortious and which violate the terms of the laws and legal obligations described in this 18 Complaint. 19 233. An actual controversy has arisen. Plaintiffs allege that Robinhood is not complying 20 with its fiduciary duties and obligations under the Customer Agreement and regulatory 21 requirements, and has not and does not maintain sufficient infrastructure necessary to provide the 22 financial services it must do so in a complete and timely manner. 23 234. Pursuant to its authority under the Declaratory Judgment Act, this Court should enter 24 a judgment declaring, among other things, the following: 25 a. Robinhood owed and continues to owe a legal duty to comply with its 26 agreements as well as regulatory requirements to maintain adequate 27 infrastructure to handle consumer demand and execute trades in a complete 28 and timely manner; and - 43 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1 b. Robinhood continues to breach this legal duty by failing to implement and 2 maintain reasonable measures to prevent Outages and provide alternative 3 means for customers to make timely financial transactions if and when they 4 do occur. 5 235. The Court also should issue corresponding injunctive relief requiring Robinhood to 6 employ adequate quality control consistent with industry standards, regulatory requirements, and 7 the parties' agreements. 8 PRAYER FOR RELIEF 9 THEREFORE, Plaintiffs seeks judgment against Robinhood, as follows: 10 A. Certifying the Class and naming Plaintiffs as representatives of the Class and/or 11 Subclasses and Plaintiffs' attorneys as Class Counsel to represent the Class members; 12 B. Finding that Robinhood's conduct violates the statutes and laws referenced herein; 13 C. Finding in favor of Plaintiffs and the Class on all counts asserted herein; 14 D. Granting restitution, disgorgement and other equitable monetary relief to Plaintiffs 15 and the Class; 16 E. Granting declaratory and injunctive relief to enjoin Robinhood from engaging in the 17 unlawful practices described in this Complaint; 18 F. Granting compensatory damages, the amount of which is to be determined at trial; 19 G. Granting pre- and post-judgment interest on all amounts awarded; 20 H. Granting injunctive relief as pleaded or as the Court may deem proper; 21 I. Awarding Plaintiffs and the Class reasonable attorneys' fees and expenses and costs 22 of suit; and 23 J. Granting further relief as this Court may deem proper. 24 JURY TRIAL DEMAND 25 Plaintiffs demand a trial by jury on all issues so triable. 26 27 28 - 44 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 DATED: August 21, 2020 Respectfully submitted, 1 2 KAPLAN FOX & KILSHEIMER LLP COTCHETT, PITRE & MCCARTHY, LLP 3 /s/ Matthew B. George Matthew B. George (SBN 239322) /s/ Anne Marie Murphy 4 Maia C. Kats (admitted pro hac vice) Anne Marie Murphy (SBN 202540) Laurence D. King (SBN 206423) Mark C. Molumphy (SBN 168009) 5 Mario M. Choi (SBN 243409) Leslie Hakala (SBN 199414) 1999 Harrison Street, Suite 1560 Noorjahan Rahman (SBN 330572) 6 Oakland, CA 94612 Tyson C. Redenbarger (SBN 294424) Telephone: 415-772-4700 Julia Peng (SBN 318396) 7 Facsimile: 415-772-4707 San Francisco Airport Office Center mgeorge@kaplanfox.com 840 Malcolm Road, Suite 200 8 mkats@kaplanfox.com Burlingame, CA 94010 lking@kaplanfox.com Telephone: (650) 697-6000 9 mchoi@kaplanfox.com Facsimile: (650) 697-0577 amurphy@cpmlegal.com 10 mmolumphy@cpmlegal.com lhakala@cmplegal.com 11 nrahman@cpmlegal.com tredenbarger@cpmlegal.com 12 jpeng@cpmlegal.com 13 Co-Lead Interim Class Counsel for Plaintiffs 14 GIBBS LAW GROUP LLP 15 Steve Lopez (SBN 300540) 505 14th Street, Suite 1110 16 Oakland, California 94612 Telephone: (510) 350-9700 17 Facsimile: (510) 350-9701 sal@classlawgroup.com 18 Liaison Counsel for Plaintiffs 19 20 MEYER WILSON BEASLEY ALLEN Courtney M. Werning (admitted pro hac vice) Leslie Pescia 21 Matthew R. Wilson (SBN 290473) W. Daniel Miles, III Chad Kohler (admitted pro hac vice) James Eubank 22 1320 Dublin Road, Suite 100 Leslie L. Pescia Columbus, Ohio 43215 218 Commerce Street 23 Telephone: (614) 224-6000 Montgomery, AL 36104 Facsimile: (614) 224-6066 Telephone: (800) 898-2034 24 cwerning@meyerwilson.com Facsimile: (334) 965-7555 mwilson@meyerwilson.com leslie.pescia@beasleyallen.com 25 ckohler@meyerwilson.com dee.miles@beasleyallen.com james.eubank@beasleyallen.com 26 27 LITE DePALMA & GREENBERG WOLF HALDENSTEIN Susana Cruz Hodge (admitted pro hac vice) Rachele R. Byrd 28 Joseph J. DePalma (admitted pro hac vice) Brittany N. DeJong - 45 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 Steven J. Greenfogel (admitted pro hac 750 B Street, Suite 1820 1 vice) San Diego, CA 92101 Jeremy Nash (admitted pro hac vice) Telephone: 619/239-4599 2 570 Broad Street, Suite 1201 Facsimile: 619/234-4599 Newark, NJ 07102 byrd@whafh.com 3 Tel: (973) 623-3000 dejong@whafh.com Fax: (973) 623-0858 4 scruzhodge@litedepalma.com jdepalma@litedepalma.com 5 sgreenfogel@litedepalma.com jnash@litedepalma.com 6 CARLSON LYNCH SCOTT + SCOTT 7 Jamisen Etzel (admitted pro hac vice) Erin Green Comite (admitted pro hac vice) Gary F. Lynch (admitted pro hac vice) 156 South Main Street 8 1133 Penn Ave., 5th Floor P.O. Box 192 Pittsburgh, PA 15222 Colchester, CT 06415 9 Telephone 412-322-9243 Telephone 860-537-5537 Facsimile 412-231-0246 Facsimile: 860-537-4432 10 glynch@carlsonlynch.com ecomite@scott-scott.com jetzel@carlsonlynch.com 11 SHUMAKER LOOP & KENDRICK AHDOOT & WOLFSON 12 Brandon Taaffe (admitted pro hac vice) Tina Wolfson (SBN 174806) Michael S. Taaffe (admitted pro hac vice) Theodore Maya (SBN 223242) 13 240 South Pineapple Ave., 10th Floor 10728 Lindbrook Drive Sarasota, Florida 34236 Los Angeles, CA 90024 14 Telephone: (941) 366-6660 Telephone: (310) 474-9111 Facsimile: (941) 366-3999 Facsimile: (310) 474-8585 15 btaaffe@shumaker.com twolfson@ahdootwolfson.com mtaaffe@shumaker.com tmaya@ahdootwolfson.com 16 17 Plaintiffs' Executive Committee 18 ANDRUS ANDERSON, LLP EREZ LAW, PLLC 19 Jennie Lee Anderson (SBN 203586) Jeffrey Erez (admitted pro hac vice) 155 Montgomery Street, Suite 900 1 SE Third Avenue, Suite 1670 20 San Francisco, CA 94104 Miami, FL 33131 Telephone: (415) 986-1400 Telephone: 305-728-3320 21 Facsimile: (415) 986-1474 Facsimile: 786-842-7549 jerez@erezlaw.com 22 THE RESTIS LAW FIRM, P.C. SILVER LAW GROUP 23 William Richard Restis Scott Silver (pro hac vice to be submitted) 402 W. Broadway, Suite 1520 11780 W. Sample Road 24 San Diego, CA 92101 Coral Springs, FL 33065 Telephone: 619-270-8383 Telephone: (954) 755-4799 25 william@restislaw.com Facsimile: (954) 755-4684 ssilver@silverlaw.com 26 CARLSON LYNCH WOLF HALDENSTEIN ADLER 27 Todd D. Carpenter (SBN 234464) FREEMAN & HERZ LLP (Eddie) Jae K. Kim (SBN 236805) Matthew M. Guiney (to be admitted pro 28 - 46 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT 8 1350 Columbia St., Ste. 603 hac vice) 1 San Diego, CA 92101 Kevin G. Cooper (to be admitted pro hac Telephone: 619-762-1900 vice) 2 Facsimile: 619-756-6991 270 Madison Avenue tcarpenter@carlsonlynch.com New York, NY 10016 3 ekim@carlsonlynch.com Telephone: 212/545-4600 Facsimile: 212/686-0114 4 guiney@whafh.com kcooper@whafh.com 5 SCOTT+SCOTT ATTORNEYS AT MAURIELLO LAW FIRM, APC 6 LAW LLP Thomas D. Mauriello (SBN 144811) Joseph P. Guglielmo (admitted pro hac vice) 1230 Columbia Street, Suite 1140 7 The Helmsley Building San Diego, CA 92101 230 Park Ave., 17th Floor Telephone: (619) 940-1606 8 New York, NY 10169 Facsimile: (949) 606-9690 Telephone: 212-223-6444 tomm@maurlaw.com 9 Facsimile: 212-223-6334 jguglielmo@scott-scott.com 10 GRABAR LAW OFFICE RIGRODSKY & LONG, P.A. 11 Joshua H. Grabar (to be admitted pro hac vice) Seth D. Rigrodsky (to be admitted pro hac 1735 Market Street, Suite 3750 vice) 12 Philadelphia, PA 19103 Timothy J. MacFall (to be admitted pro hac Telephone: 267-507-6085 vice) 13 Facsimile: 267-507-6048 825 East Gate Boulevard, Suite 300 jgrabar@grabarlaw.com Garden City, NY 11530 14 Telephone: (516) 683-3516 sdr@rl-legal.com 15 tjm@rl-legal.com 16 THE GUILIANO LAW GROUP, P.C. ROSMAN & GERMAIN LLP Nicholas J. Guiliano (to be admitted pro hac Daniel L. Germain (SBN 143334) 17 vice) 16311 Ventura Blvd., Suite 1200 1700 Market Street, Suite 1005 Encino, CA 91436-2152 18 Philadelphia, PA 19103 Telephone: (818) 788-0877 Telephone: (215) 413-8223 Facsimile: (818) 788-0885 19 Facsimile: (215) 660-5490 Germain@Lalawyer.com nick@nicholasguiliano.com 20 THE WEISER LAW FIRM, P.C. 21 James M. Ficaro (pro hac vice to be requested) 22 Cassatt Avenue 22 Berwyn, PA 19312 Telephone: (610) 225-2677 23 Facsimile: (610) 408-8062 jmf@weiserlawfirm.com 24 Plaintiffs' Counsel 25 26 27 28 - 47 - Case No. 3:20-cv-01626-JD CONSOLIDATED CLASS ACTION COMPLAINT