(AP) — Robinhood
Financial will pay nearly $70 million to settle a variety
of allegations, including that it misled customers and improperly allowed some users to make riskier trades after they lied about their trading experience.
The monetary fine
is the largest ever imposed by the Financial Industry Regulatory Authority, a non-governmental organization that regulates the brokerage industry, and it “reflects the scope and seriousness of Robinhood’s violations,” according to Jessica Hopper, head of FINRA
’s enforcement department.
Since its 2014 launch, Robinhood has shook up the brokerage industry with zero-commission trading and an easy-to-use app that has drawn a new generation of investors into the market, and it now has more than 31 million customers, many of whom were previously left behind as the stock market rose without them. However, it has also faced criticism and penalties from a variety of regulators over allegations of insider trading.
In the settlement announced Wednesday, Robinhood neither admitted nor denied the allegations. In a blog
post, Robinhood detailed how it has improved customer support, including the ability to call in and speak with a service representative for certain issues.
“We are relieved to be able to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all,” said Jacqueline Ortiz Ramsay, Robinhood’s head of public policy communications.
Among the examples cited in FINRA's settlement was the suicide
of a 20-year-old customer last year, who, according to a note discovered after his death
, was perplexed as to how he could have used borrowed money
to trade when he thought he had turned off that feature. The day before his death, Robinhood showed the customer that his cash balance was negative $730,165.72, when it was actually negative $365,530.60.
According to FINRA, he was one of more than 800,000 customers who were allowed to make certain types of trades that could automatically trigger the use of borrowed money, even if they had turned off the ability to trade “on margin.” He was also one of more than 135,000 customers whose cash balances were incorrectly reported by Robinhood’s website and mobile app from December 2019 to J.
FINRA also accused Robinhood of using “approval bots” with little oversight to decide whether to allow customers to trade options, which are riskier than simply buying stocks and can result in faster and larger losses. FINRA said those bots frequently approved customers based on “inconsistent or illogical information,” and they gave the OK to some customers who were under the age of 21.
Previous outages at Robinhood were also mentioned, with FINRA accusing it of failing to reasonably supervise the technology on which it relied. The most serious occurred on March 2, 2020 and continued into the following day, when Robinhood customers were unable to access their accounts as the pandemic
caused upheaval across markets.
Robinhood will pay a $57 million fine and another $12.6 million to thousands of its customers as part of the settlement. This is not the company's first FINRA settlement; in 2019, it agreed to pay $1.25 million in response to allegations that it did not do everything it should to find the best prices for customers trading stocks.
Last year, Robinhood agreed to pay $65 million to settle SEC allegations that it failed to disclose full details of its dealings with high-speed traders and did not get the best prices for customers trading on its app.
Robinhood has been a key player in the growing importance of smaller-pocketed investors on Wall Street
, thanks to its growing ranks of often younger and less experienced customers.
Many are investing their savings for the first time in an attempt to slow the widening gap between themselves and wealthier households. Many have also encouraged one another on social media
to pile into certain stocks en masse, resulting in some maniacal moves for “meme stocks.”
For example, GameStop has risen from $20 to $483 this year, fallen back to around $40, and now trades at around $210. Trading in GameStop and a handful of other stocks became so volatile earlier this year that Robinhood and other brokerages temporarily blocked trading, infuriating many customers.
Robinhood, which claims to promote "investing for everyone," is preparing to sell its own stock on the market in one of Wall Street's most anticipated IPOs.