- Robinhood has agreed to pay FINRA’s largest ever fine of $57 million.
- FINRA said Robinhood misled millions of customers and approved ineligible traders for risky strategies.
- Robinhood has neither confirmed nor denied the allegations.
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Robinhood has agreed to pay nearly $70 million to settle claims by FINRA that the brokerage misled millions of customers, approved ineligible traders for risky strategies, and didn’t supervise technology that locked millions out of trading, the regulator announced today.
The regulatory body has fined Robinhood $57 million and ordered the brokerage to pay an additional $12.6 million in restitution to thousands of affected customers.
The fine is the largest ever ordered by FINRA and reflects the seriousness of the violations, the regulator said.
“In determining the appropriate sanctions, FINRA considered the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the firm, millions of customers affected by the firm’s systems outages in March 2020, and thousands of customers the firm approved to trade options even when it was not appropriate for the customers to do so,” FINRA said in a statement.
FINRA said its investigation found that Robinhood has “negligently communicated false and misleading information to its customers,” across a variety of issues, including whether customers could trade on margin, how much cash was in customers’ accounts, and the risk of loss customers faced in certain options transactions.
FINRA cited one instance where a Robinhood customer who had believed he had margin turned off tragically took his own life in June 2020. In a note found after his death, he expressed confusion as to how he could have used margin to purchase securities because, he believed, he had not “turned on” margin in his account.
The regulator said that due to Robinhood’s misstatements, customers suffered more than $7 million in total losses, which the firm will need to pay back as restitution.
FINRA also found that the brokerage firm failed to exercise due diligence before approving customers to place risky options trades.
In one instance, a 20 year old customer noted he had little investing experience and a low risk tolerance and was rejected for options trading, FINRA said. Three minutes later, he changed his risk appetite to “medium” and his experience to three years. Robinhood then approved him for options trading seconds later, according to FINRA’s settlement document.
Additionally, FINRA found that Robinhood failed to supervise its technology that accepts and executes customer orders and experienced a series of outages and critical systems failures from January 2018 to February 2021 that led to tens of thousands of dollars in customer losses.
Robinhood neither admitted nor denied the charges.
The settlement from FINRA comes as the mobile trading app is preparing for an initial public offering. Last week, it was reported that the SEC has slowed down Robinhood’s public listing plans as it scrutinizes the app’s cryptocurrency business.