By Andrew Chung
Nov 13 (Reuters) - The US Supreme Court agreed on Friday to consider an effort by Robinhood Markets to shut down a lawsuit accusing the online brokerage of misleading investors about its financials and growth prospects for its initial public offering.
Robinhood appealed a lower court's decision to revive the proposed class action by plaintiffs who alleged that it failed to adequately disclose the negative impact of a meme stock and cryptocurrency frenzy that dried up before it went
public in July 2021 and other changes in its performance prior to the IPO.
The Supreme Court is expected to hear arguments in the case and issue a ruling by the end of June.
President Donald Trump's administration had urged the Supreme Court to hear the appeal, and backed Robinhood's position.
Investors who acquired Robinhood shares tied to the IPO sued under provisions of the Securities Act of 1933, a federal investor protection law that seeks to ensure companies disclose accurate information needed to make informed investment decisions.
Results following the IPO that showed declines in revenue and key performance indicators caused the Menlo Park, California-based company's stock price to drop sharply, the plaintiffs said.
They claimed that Robinhood made misleading statements and omissions in IPO documents by not disclosing a shift in revenue to fad trading in social media-driven meme stocks like GameStop and cryptocurrency dogecoin, which subsided prior to the IPO, as well as an "exodus of its traditional customers." Those alleged omissions threatened Robinhood's financial prospects, the plaintiffs alleged.
Robinhood rejected the claims, contending that because of the trading volume spikes at the beginning of 2021, its IPO documents made extensive disclosures about future risks and warned about a downturn from the meme-stock and dogecoin-driven peaks.
The lead plaintiffs in the lawsuit, first filed in 2021, are Vinod Sodha, a psychiatrist from Beverly Hills, California, and his daughter Amee Sodha, a physician from Millburn, New Jersey.
US District Judge Edward Chen in San Francisco dismissed the lawsuit in 2024 after finding that the plaintiffs' claims of Robinhood's failings were insufficient for the case to proceed.
The San Francisco-based 9th US Circuit Court of Appeals revived the challenge in 2025, finding that Chen applied the wrong standards under the securities laws and regulations at issue in the case.
Robinhood urged the Supreme Court to hear the case, saying that the 9th Circuit's decision exposes companies to massive liability while imposing burdensome disclosure requirements that risk burying investors in trivial information.
The case "concerns classic half-truths in the registration statement that Robinhood used for its IPO in July 2021," the plaintiffs told the Supreme Court.
(Reporting by Andrew Chung in New York; Editing by Will Dunham)
