Plaintiffs ask court to throw out Citadel’s arguments in Short Squeeze lawsuit

abdelaziz Fathi

Plaintiffs suing Citadel Securities and others over trading restrictions on “meme stocks” have filed a motion to strike the market maker’s recent court filing that leaned on the SEC’s report to dismiss the conspiracy charges.


Retail investors, who filed complaints seeking potentially billions in damages, are asking the court to throw out “the notice of supplemental authority” that was submitted by Citadel.

Describing the notice as “incomplete and misleading,” they challenged Citadel Securities about its efforts to call the court attention to conclusions set out in the SEC’s report on the retail trading mania earlier this year.

The original motion, filed last week in the US District Court in the Southern District of Florida, argues that the report stopped short of laying blame on hedge funds, clearing houses or other market participants.

And as it turned out, Ken Griffin’s electronic trading firm and hedge fund says the SEC’s review refutes plaintiffs’ claims that the government investigations were “indicative of anti competitive collusion” and that it was specifically “indicative of collusion” that the SEC is investigating the events concerning the January’s trading restrictions.

Citadel also alleges that the SEC’s conclusion supports its argument that “the enforcement of Plaintiffs’ claims would create conflict between the Exchange Act and the Sherman Act because the SEC is currently investigating the January 2021 short squeeze events.”

But on the flip side, plaintiffs claim that when the facts are given a minimal level of scrutiny, it is clear that Citadel’s purpose is to “mischaracterize” the SEC’s findings, cherry picking portions that expand its arguments while omitting key portions of the staff report.

The legal notice further explains that while the 45-page report was simply meant to describe events, the market maker had misinterpreted the regulatory body’s bulletins which, like all staff statements, have no legal force or effect.

“Further, the Staff Report’s Disclaimer, as described in greater detail below, states that the SEC, “expressed no view regarding the analysis, findings, or conclusions contained [t]herein.” Staff Report at 1.1 Therefore, the Staff Report has no factual, evidentiary, or precedential value for this action. Second, the Staff Report expressly disclaims any legal or factual effect,” the statement reads.

Summing up a point, the plaintiffs say no legal conclusions can be drawn from the SEC’s report, and it has no “preclusive effect” with respect to key points addressed by defendants in their lawsuit.

Delving further into the details, the ‘motion to strike’ states that the electronic-trading firm claims the SEC concluded that broker-dealers restricted trading due to margin calls, capital obligations and clearinghouse deposits.

This argument, however, not only “mischaracterizes” the actual findings, but also omits that this statement was included under the subsection “forces that may cause a brokerage to restrict trading.” That makes many of Citadel’s notice conclusions fairly reserved, they add.

Additionally, but without offering further grounds, the plaintiffs deny that the key takeaway from the GameStop SEC report did raise any concerns about conflict between the Securities Exchange Act and the Sherman Act.

Third, the plaintiffs further argue that the agency’s review of the GameStop event didn’t actually address claims that Citadel Securities was part of a conspiracy to dampen the rally by halting stock purchases.

While the SEC’s findings frustrated the conspiracy theorists and those hoping for a massive bombshell, the report itself was too narrative.

Overall, the US Securities and Exchange Commission’s release only outlined the events surrounding the most remarkable periods of the frenzied trading in shares of GameStop, but didn’t directly recommend any specific changes. It also didn’t contain SEC-level policy discussions over market practices that have drawn recent attention, including conflicts of interest, payment for order flow, dark pools, off-exchange trading and wholesale market-making.


Read this next

Digital Assets

AAX ranked world’s second largest spot exchange, only behind Binance

Crypto trading volumes experienced their first surge in activity since March as the majority of digital assets began their recovery from the recent grim price action, according to a new report by Cryptocompare.

Digital Assets

Bitpay teams up with Cardlytics to provide 15% cashback rewards

Crypto payment service provider Bitpay announced a partnership with Cardlytics Inc (NASDAQ:CDLX), which it says will offer more rewards for BitPay cardholders on its platform.

Digital Assets

BlackRock digs further into crypto with spot bitcoin private trust

BlackRock, the world’s largest asset manager with almost $8 trillion in AUM, has launched a spot bitcoin private trust for institutional clients in the United States.

Digital Assets

SEC fines Bloom Protocol, orders refund to BLT token purchasers

Blockchain startup Bloom, which raised $30 million in funds via an initial coin offering (ICO), has agreed to return the money to token purchasers and pay a $300,000 fine, the SEC announced.

Institutional FX

FX volume takes step back at Singapore Exchange in July

The Singapore Exchange (SGX), the country’s paramount exchange operator, has released its monthly volumes across its FX, derivatives and commodities segments for July 2022.

Market News

The Week Ahead: 12 August from David Madden, Market Analyst at Equiti Group

There was a spike in volatility last week when the US CPI report ticked down to 8.5% from 9.1%, missing the forecast of 8.7%. The announcement led to chatter the Fed might not carry out a 0.75% interest rate hike in September.

Digital Assets

Pomelo Pay adds crypto payments capabilities from TripleA

According to a June survey conducted by Deloitte, nearly 75% of retailers plan to accept either cryptocurrency or stablecoin payments within the next two years.

Executive Moves

Talos appoints “boss, mentor, and friend” Neal Pawar as strategic advisor

“Foundational technologies are needed for institutions to fully embrace this potential, however, and in my opinion Talos’s platform is steadily becoming the de facto industry standard for digital asset trading.”


Avelacom enhances Middle East connectivity amid new market trends

Avelacom found that smaller markets in the region were not sufficiently covered by third-party vendors.