Robinhood Financial will pay nearly $ 70 million to resolve a wide range of allegations, including providing misleading information to customers and allowing some users to take riskier transactions after lying about their business experience.
The financial sanction is the largest ever ordered by the Financial Industry Regulatory Authority (FINRA), a non-governmental organization that oversees the U.S. brokerage industry and “reflects the scope and severity of Robinhood violations.” said Jessica Hopper, head of FINRA application department.
Since its launch in 2014, Robinhood has rocked the brokerage industry with commission-free trading operations and an easy-to-use app that has attracted a new generation of investors to the market.
It already has more than 31 million customers, many of whom were previously left behind as the stock market grew without them. But it has also faced criticism and sanctions from various regulators for allegations that encouraged newcomers to make business too risky for them and hurt them in other ways.
Robinhood neither admitted nor denied the allegations of the deal announced Wednesday. In a blog post, Robinhood detailed how it has improved assistance to its customers, including the ability to call and talk to a service representative for some issues.
“We are thrilled to leave this issue behind and look forward to continuing to focus on our customers and democratize finance for all,” said Jacqueline Ortiz Ramsay, Robinhood’s head of public policy communications.
Examples cited in the FINRA agreement included the suicide of a 20-year-old client last year. A note he found after his death said he was confused about how he could have used borrowed money to operate when he thought he had disabled that feature. The day before he died, Robinhood showed the customer that his cash balance was negative at $ 730,165.72, when in reality it was negative at $ 365,530.60.
FINRA said it was one of more than 800,000 customers that Robinhood allowed to carry out certain types of transactions that could automatically trigger the use of borrowed money, even if they had disabled the possibility of trading “on the sidelines”. It was also an example of the more than 135,000 customers to whom Robinhood’s website and mobile app gave inaccurate figures for their cash balances from December 2019 to June 2020.
FINRA also accused Robinhood of using “approval robots,” with limited oversight, to decide whether to allow customers to change options. These trades can be riskier than simply buying stocks, with the potential for faster and larger losses.
FINRA said these robots often approved of customers based on “inconsistent or illogical information.” They gave OK to some customers under the age of 21, but also said they had more than three years of experience in trading options, for example.
Past interruptions to Robinhood were also cited, and FINRA accused him of not reasonably overseeing the technology he relied on. The worst occurred on March 2, 2020 and continued the next day, when Robinhood customers were unable to access their accounts as the coronavirus pandemic caused seizures in all markets.
In its deal, Robinhood will pay a $ 57 million fine and pay another $ 12.6 million to thousands of customers. It is not the company’s first agreement with FINRA. In 2019, it agreed to pay $ 1.25 million after allegations of not doing everything possible to find the best prices for listed customers. Robinhood neither admitted nor denied the allegations in that agreement.
Last year, Robinhood agreed to pay $ 65 million to resolve allegations by the U.S. Securities and Exchange Commission that it did not disclose all details of its relationship with high-speed operators and did not obtain the best prices for customers who trade with your app.
Robinhood has been a central player in the growing importance of smaller pocket investors on Wall Street, with its expansion of most younger and inexperienced customers.
Known in the industry as “retail investors” to distinguish them from pension funds and other professional investors, many are investing their savings for the first time in an attempt to curb the widening gap between them and more households. rich. Many have also encouraged each other on social media to massively stack certain actions. This has caused some manic moves for “meme stocks”.
GameStop this year has risen from $ 20 to $ 483, has returned to about $ 40 and is now trading at about $ 210, for example. The trade went so wild earlier this year that Robinhood and other brokers temporarily blocked trading on GameStop and a handful of other stocks, which angered many customers.
Robinhood, which says it is trying to promote “investment for all,” is preparing to sell its own shares to the market in one of Wall Street’s most anticipated initial public offerings.