Robinhood reaches $10M settlement with US state regulators for investor failure.

2023-04-06

Summary:
  • The California Department of Financial Protection and Innovation has announced that Robinhood will pay more than $10 million in penalties for operational and technical failures that harmed investors
  • The settlement was the result of an investigation by the North American Securities Administrators Association and securities regulators from several states
  • Robinhood suffered system outages in March 2020, causing users to miss out on trades and many of the platform's services were unavailable
  • The platform faced a class-action lawsuit and a $70 million fine from the U.S. Financial Industry Regulatory Authority for causing significant harm to users
  • The DFPI accused Robinhood of negligent dissemination of inaccurate information and failures related to services available to customers and transparency with FINRA and state regulators
  • The settlement does not admit or deny the regulators' findings, and there was no evidence of willful or fraudulent conduct
  • The New York Department of Financial Services and the SEC also issued penalties against Robinhood's crypto business arm for alleged violations related to anti-money laundering, cybersecurity, and consumer protection laws


Full article:

The investigation looked into complaints of Robinhood's system outages, causing users to miss out on trades while many of the platform's services were unavailable.

The California Department of Financial Protection and Innovation said that the company behind cryptocurrency and stock trading platform Robinhood will likely pay more than $10 million in penalties “for operational and technical failures that harmed main street investors.”

In an April 6 announcement, the DFPI said the settlement — up to $10.2 million — was the result of an investigation by the North American Securities Administrators Association in conjunction with securities regulators from Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas. The platform suffered a series of system outages in March 2020 causing users to miss out on trades while many of Robinhood’s services were unavailable.

“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,” said NASAA President Andrew Hartnett.

Robinhood experienced significant growth at the start of the COVID-19 pandemic when many people shifted to working from home and conducting online trades through the app. However, the platform’s outages caused some affected users to file a class action lawsuit against Robinhood. The U.S. Financial Industry Regulatory Authority, or FINRA, also penalized the firm for roughly $70 million for causing “widespread and significant harm” to thousands of users.

“There were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping.”

The DFPI order accused Robinhood of “negligent dissemination of inaccurate information to customers” in regards to margin trading and risks with multi-leg option spreads, as well as failures related to services available to customers and transparency with FINRA and state regulators. As part of the settlement, Robinhood “neither admits nor denies” the regulators’ findings, which did not include evidence of “willful or fraudulent conduct.”

US DOJ announces seizure of 55M Robinhood shares

The New York Department of Financial Services — which was not a part of the NASAA investigation — announced a $30 million penalty on Robinhood’s crypto business arm in August 2022 for alleged violations related to anti-money laundering, cybersecurity and consumer protection laws between January and September 2019. The U.S. Securities and Exchange Commission also issued an investigative subpoena against the firm in December 2022 for its crypto listings and custody services.

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Source: cointelegraph.com

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