- Robinhood has agreed to pay $10.2 million to end a multistate inquiry into allegations that it harmed retail investors.
- The settlement was based on an investigation spearheaded by securities regulators from seven states.
- Robinhood had not engaged in deliberate or fraudulent behavior.
On April 6, the California Department of Financial Protection and Innovation (DFPI) announced that Robinhood Financial LLC would pay up to $10.2 million in fines for operational and technical errors that caused harm to regular investors. This is according to a multistate settlement that the DFPI has entered.
The press release revealed that the settlement came from an inquiry by the North American Securities Administrators Association (NASAA) into Robinhood’s operational shortcomings in the retail market. The question was spearheaded by security regulators from Texas, South Dakota, New Jersey, California, Delaware, Colorado, and Alabama.
The investigations were provoked by disruptions of the Robinhood platform in March 2020, when most people worked from home during the Coronavirus pandemic, and hundreds of thousands of investors depended on the Robinhood app to execute trades.
Additionally, before that, Robinhood had flaws in its review and approval procedures for options and margin accounts and its monitoring and reporting tools, customer service, and escalation procedures. As a result, users of Robinhood were occasionally unable to execute trades, even as the value of particular stocks was declining.
Commenting on the settlement, NASAA President Andrew Hartnett said:
“Today’s multistate agreement represents states at their best – working together for the benefit of Main Street investors,”
Regarding the service the company offered its customers, Hartnett added:
“Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies.”
Robinhood’s Violations
DFPI referred to the consent order in outlining Robinhood violations, including negligently providing consumers with false information, including about margin and the risk involved with multi-leg option spreads; the absence of a client identification program that is appropriately constructed; oversight of technology necessary to deliver core broker-dealer services to customers; lack of a system that is logically intended to handle customer inquiries; not doing enough research before allowing specific option accounts; and Failing to notify state securities regulators and the Financial Industry Regulatory Authority (FINRA) of all client complaints as may be necessary.
The conclusions stated in the orders from the States are neither admitted nor denied by Robinhood.
The DFPI said on Twitter that Robinhood had implemented recommendations from an independent consultant.
Commenting on investor and consumer protection, DFPI Commissioner Clothilde Hewlett said:
“Online trading platforms provide Americans with convenient options to invest. But platforms such as Robinhood must comply with common-sense protections for investors and consumers as required by law. Today’s agreement reflects the ongoing efforts by state securities regulators to protect investors and ensure that they are treated fairly by financial services firms.”
The DFPI concluded that Robinhood had not engaged in deliberate or fraudulent behavior and had entirely cooperated with the investigation.
Robinhood’s Array of Penalties
The U.S. Financial Industry Regulatory Authority (FINRA) also fined Robinhood approximately $70 million for inflicting widespread and severe harm to thousands of users.
In August 2022, Robinhood’s cryptocurrency division was fined $30 million by the New York Department of Financial Services for suspected violations of anti-money laundering, cybersecurity, and consumer protection regulations between January and September 2019 and fined $30 million in August 2022.
In December 2022, the company received an investigative subpoena from the U.S. Securities and Exchange Commission about its custody and listing services for cryptocurrencies and was fined $65 million.
