Robinhood fined $ 70 million for breakdowns and deceptive customers
Robinhood Financial was ordered to pay nearly $ 70 million to fix “systemic oversight failures” that caused “significant harm” to millions of clients after the brokerage firm misled them, misled them. exposed to risky trading tools and did not oversee its technology, a failure that leads to trading disruptions, an industry regulator said on Wednesday.
The online brokerage will pay a fine of $ 57 million and nearly $ 13 million in restitution to thousands of aggrieved customers. This is the heaviest sanction ever imposed by the Financial Sector Regulatory Authority, according to the agency. The organization, which is overseen by the Securities and Exchange Commission, regulates brokerage firms.
Robinhood misled consumers and exposed them to excessively risky trading tools, and also failed consumers when its services suffered multiple outages, the regulator said. The company has approved thousands of clients for options trading, but those clients did not meet the company’s eligibility criteria, FINRA added.
Robinhood has neither admitted nor denied the allegations.
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“FINRA has taken into account the widespread and significant harm suffered by customers, including millions of customers who have received false or misleading information from the company, millions of customers affected by failures of security systems. the company in March 2020 and thousands of clients the company approved to trade options even when it was not appropriate for clients to do so, ”FINRA said in a statement.
At the start of the pandemic, Robinhood suffered several days of blackouts in March 2020 that prevented clients from trading stocks, options or cryptocurrencies when financial markets suffered a rapid decline.
The settlement, however, is unrelated to the meme stock frenzy at the start of the year when Robinhood temporarily banned clients from buying stock in multiple companies, including high-profile stocks like GameStop.
Robinhood has also come under scrutiny following the death of Alex Kearns, a 20-year-old client who committed suicide after believing he had lost a significant amount of money on the trading platform. FINRA said it found that the company “negligently communicated false and misleading information to its customers” about the amount of cash in accounts receivable and the risk of loss.
“Robinhood also displayed inaccurate negative cash balances to this individual (and certain other clients),” FINRA said, adding that as part of the settlement, the company is required to pay more than $ 7 million in compensation to these clients.
Critics say that the simple and intuitive trading app created by Robinhood directs clients towards risky investments that earn the company and its trading partners the most money.
The app itself makes it extremely easy for investors to buy and sell stocks. Within minutes, users can be online and trade up to $ 1,000.
Robinhood’s website says it “has always sought to put you, our customers, first.”
Robinhood, which has 31 million customers, had 18 million funded accounts, according to a settlement document released Wednesday.
Robinhood is expected to go public in the coming months with a valuation exceeding $ 30 billion.