Robinhood said it expects to pay a $30 million fine as part of anti-money laundering probe of its crypto business

  • Robinhood said it expects to pay a $30 million penalty related to an anti-money laundering probe of its crypto business.
  • The penalty would be on top of a $70 million fine from FINRA, and a $65 million settlement with the SEC.
  • The disclosure came in an amended S-1 filed with the SEC on Monday.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Robinhood said it expects to pay a $30 million penalty in relation to an anti-money laundering probe of its cryptocurrency business, according to an amended S-1 filed with the SEC on Monday.

The online trading app said that in July of 2020, the New York Department of Financial Services said Robinhood’s crypto unit had a number of “matters requiring attention,” primarily focused on anti-money laundering and cybersecurity-related issues.

In March, a subsequent investigation by the Consumer Protection and Financial Enforcement division of the NYDFS found alleged violations of anti-money laundering and New York Banking Law requirements, “including the failure to maintain and certify a compliant anti-money laundering program,” according to the filing.

Other violations include of cybersecurity and virtual currency requirements, “including certain deficiencies in our policies and procedures regarding risk assessment, lack of an adequate incident response and business continuity plan, and deficiencies in our application development security,” the filing said.

Robinhood said its crypto business has reached “a settlement in principle with respect to these allegations, subject to final documentation.” The brokerage firm expects to pay a monetary penalty of $30 million and engage a monitor, likely to prevent further violations.

This isn’t Robinhood’s first multi-million dollar penalty in relation to its business operations. In December, the company agreed to pay a $65 million settlement with the SEC for misleading its customers about revenue sources and failing to satisfy its duty of best execution for customer trades.

And in June, Robinhood agreed to pay a $70 million fine with FINRA to settle claims 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 $165 million in total one-time fines Robinhood has been ordered to pay represent 32% of the company’s first quarter revenues of $522 million.

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Robinhood plans to raise as much as $2.3 billion in its upcoming stock-market debut

Robinhood logo displayed on a phone screen and representation of cryptocurrencies are seen in this illustration photo taken in Krakow, Poland on June 29, 2021

Robinhood is aiming to raise as much as $2.3 billion in its upcoming stock market debut, the company said in a filing with the Securities and Exchange Commission on Monday.

The popular investing app said it’s offering 55 million shares priced at between $38 and $42 each during its roadshow. At the top end of that range, Robinhood could have a market valuation of $35 billion.

It plans to list on the Nasdaq under the ticker symbol “HOOD” and is expected to go public by the end of next week. Under its new program to “democratize” IPOs, Robinhood plans to allocate 35% of its IPO shares to retail investors, The Wall Street Journal reported.

If it hits $101.50 per share in the next four years, cofounders Vlad Tenev and Baiju Bhatt could receive up to $1.4 billion worth of Robinhood stock each, an SEC filing from June said.

Robinhood, which counts 17.7 million monthly active users, holds $81 billion in assets under custody, its filing says. It also says it has 22.5 million funded accounts, or those tied to a bank account, up from 18 million in the first-quarter this year, far above the 40,000 accounts it counted in 2014.

Revenue for the first quarter of 2021 came in at $522 million, up from $128 million in the same period last year. The company expects to report second-quarter revenue in the range of $546 million and $574 million, marking a 129% jump from the $244 million made in the second-quarter last year.

Robinhood was valued at $11.7 billion in a private fundraising round late last year. But based on trading in the secondary market, Bloomberg Intelligence analyst David Ritter had previously estimated it could be worth as much as $40 billion.

Goldman Sachs, Barclays, Citigroup, and JPMorgan are the lead underwriters on Robinhood’s IPO, among other banks.

Read More: Memeification vs manipulation: The creator of a site designed to find meme stocks shares how to track Reddit momentum and find frauds – and lists the 9 meme stocks with the most loyal fanbases

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Robinhood revealed it made $30 million from clients trading dogecoin in the 1st quarter – and that amount likely skyrocketed ahead of the company’s IPO

NYSE trader

Robinhood’s S-1 IPO filing released last week revealed that the company generated nearly $30 million in revenue from trading in dogecoin in the first quarter of 2021.

That revenue figure is likely to explode in the second quarter, as dogecoin spiked more than 1,375% amid a surge in popularity in part driven by tweets and a SNL appearance from Tesla CEO Elon Musk.

Robinhood’s significant revenue derived from dogecoin trading is a reason the meme-inspired cryptocurrency was included as a risk factor in the online trading app’s IPO filing.

“A substantial portion of the recent growth in our net revenues earned from cryptocurrency transactions is attributable to transactions in Dogecoin. If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected,” Robinhood warned prospective investors.

But that risk likely won’t be felt by investors in the second quarter of 2021, when cumulative daily trading volumes in dogecoin soared 258%, based on historical data from CoinMarketCap.

The trading volume in dogecoin in the first quarter of 2021 was $243 billion. On average, $2.7 billion worth of dogecoin exchanged hands on any given day in the first quarter, and dogecoin was just $0.05 on March 31.

Fast forward to the second quarter, and the cumulative trading volume in dogecoin soared to $866 billion. On average, $9.5 billion worth of dogecoin exchanged hands on any given day in the second quarter, and dogecoin peaked at about $0.74 on May 8.

That could translate into Robinhood generating more than $100 million in revenue from dogecoin transactions next quarter. But a steep swing lower in dogecoin revenue is likely for Robinhood going forward, given that average daily trading volumes in dogecoin has fallen to $5.8 billion since its peak.

Following a 80% decline in dogecoin, combined with recent tweets from Elon Musk having little impact on its price, it seems unlikely dogecoin will ever generate as much revenue for Robinhood as it did over the past six months.

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Robinhood’s IPO filing makes it clear: The no-fee trading app is now a cultural force in its own right

  • Robinhood’s IPO filing shows it is a cultural force that has ushered in a new generation of investors.
  • It has 32 million newsletter and podcast subscribers and almost 18 million monthly active users.
  • Robinhood estimates nearly half of all new US retail accounts created in the last five years were on its platform.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

32 million newsletter and podcast subscribers. Almost 18 million monthly active users. Brand recognition with more than half of 18-44 years olds in the US.

These statistics aren’t for a media company or social media app. They’re for Robinhood, the highly popular commission-free investing service.

A look inside Robinhood’s IPO filings paints a clear picture that the no-fee trading app is a cultural force that has ushered in a new generation of investors unlike any traditional brokerage firm.

The firm’s mission is to “democratize finance for all,” and it was the first of its kind to offer commission-free trading to investors.

The prospect of no-fee mobile investing was likely what drove millions of new investors to Robinhood. Robinhood said it believes close to 50% of all new retail funded accounts opened in the US from 2016 to 2021 were new accounts created on Robinhood. The app cited new account data from publicly reporting peer brokerage.

The company also said that in an internal brand study from March 2021, over half of 18-44 year olds in the US knew what Robinhood was.

Also, Robinhood reported that retail investors are flocking to the site for investing education in growing numbers. Robinhood Learn had more than seven million cumulative page views as of March 31, 2021, and monthly unique visits to Robinhood Learn rose nearly six-fold from January 2020 to March 2021.

“While we are only six years into our journey, we have already seen profound transformations in how people think about their money – the next generation of investors is younger and more diverse than ever before, and finance is now as culturally relevant as music and the arts,” cofounders Vlad Tenev and Baiju Bhatt said in letter accompanying the app’s IPO paperwork.

“By untethering investing from the desktop computer, we’ve seen new categories of people, including gig economy workers, first responders, construction workers, and many more, discovering Robinhood and becoming investors,” they added.

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Robinhood’s IPO filing reveals over 50 lawsuits related to trading restrictions it imposed during January’s meme-stock madness

Vlad Tenev
Vlad Tenev, co-founder and co-CEO of investing app Robinhood.

  • Robinhood’s IPO filing shows the company faces more than 50 legal complaints stemming from January’s meme-stock trading.
  • Customers were angered by Robinhood’s move to temporarily stop users from buying certain stocks.
  • Robinhood said it is cooperating with investigations by officials.
  • See more stories on Insider’s business page.

Retail trading platform Robinhood is facing more than 50 lawsuits stemming from the restrictions it put in place to manage the trading mania in January surrounding so-called meme stocks, according to the company’s IPO filing.

Robinhood in its S-1 filing with the Securities and Exchange Commission on Thursday said it has become aware of about 50 putative class lawsuits and three individual actions that have been filed against it in various federal and state courts. It said two of the class action complaints have been voluntarily dismissed with prejudice.

The legal complaints follow Robinhood’s move in January of temporarily stopping users from buying shares of GameStop, AMC Entertainment and other stocks whose prices quickly soared as retail investors defended the shares from short-sellers.

“The complaints generally allege breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty and other common law claims,” Robinhood said in the SEC filing. It added that several complaints further allege federal securities claims, federal and state antitrust claims, and certain state consumer protection claims based on similar factual allegations. It said 19 of the putative class actions also name other broker-dealers or market makers as defendants.

The company said it’s being investigated by regulators including staff at the SEC and the antitrust division of the US Department of Justice. It said Vladimir Tenev, Robinhood’s co-founder and CEO, and others have received requests for information and testimony, subpoenas and that the US Attorney’s Office executed a search warrant to obtain Tenev’s cell phone.

“We are cooperating with these investigations and examinations,” Robinhood said.

The company on Wednesday 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.

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Days after Charlie Munger called Robinhood ‘a gambling parlor,’ the free-trading app revealed options trading as its largest source of revenue

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Warren Buffett, CEO of Berkshire Hathaway, and vice chairman Charlie Munger.

Just two days after Charlie Munger of Berkshire Hathaway called Robinhood “a gambling parlor,” the free-trading app said it derives a majority of its revenue from options trading.

The comments from Warren Buffett’s right-hand man came in an interview with CNBC on Tuesday night, in which the billionaire investor said, “it’s telling people they aren’t paying commissions when the commissions are simply disguised in the trading.”

On Thursday, Robinhood filed its S-1 with the SEC, a necessary step the company has to take prior to going public. The document revealed the underlying drivers of Robinhood’s business, from options, equities, and crypto trading, to securities lending and payment for order flow.

In 2020, Robinhood generated $720 million in revenue, of which 61%, or $440 million, was derived from options trading. Robinhood’s options trading revenue grew 298% in 2020, relative to 2019, as the pandemic and government stimulus checks led to a boom in stock market trading by retail investors.

Options trading is often viewed as a much riskier form of trading relative to stock trading, as it gives investors leverage to increase their exposure to short-term or long-term moves in the stock market.

While less risky option trading strategies exist, like selling covered calls on an underlying stock holding, a bulk of the options trading among Reddit “YOLO” investors tends to be buying directional put or call options with short-term expiration dates. Unless timed properly, these types of options trades can lead to a loss of nearly all invested capital.

“[Robinhood is] a gambling parlor masquerading as a respectable business,” Munger said.

Robinhood probably disagrees with Munger. In the company’s S-1 filing, it laid out how it’s democratized stock market investing for 18 million users through $0 trading commissions, an easy-to-use app, and education initiatives.

The company said more than 50% of its customers say they are first-time investors.

A customer named Angelina was quoted in Robinhood’s S-1 as saying, “The investor in my head was someone who wore a suit and a tie. Robinhood changed that for me.”

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Robinhood’s timeline to go public slowed by the SEC’s close scrutiny of its cryptocurrency business, report says

Vlad Tenev Robinhood
  • Robinhood’s IPO plans have hit a snag as the SEC reviews its prospectus, Bloomberg reported.
  • The regulator has been looking into Robinhood’s growing cryptocurrency business, the report said.
  • The investing app provider’s listing, initially planned for June, could be delayed to the fall.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Scrutiny from the Securities and Exchange Commission has been standing in the way of Robinhood’s plans to go public, Bloomberg reported on Thursday.

The US securities-markets regulator has been looking closely at the investing app provider’s expanding cryptocurrency business, and there has been extensive discussion between the two about Robinhood’s IPO prospectus, the report said, citing people familiar with the matter. This has dragged on the planned timeline for the public listing, which has already hit a hitch.

Robinhood, which initially aimed to go public in June, reportedly delayed its schedule for the stock market debut to July. Now that its plans are moving slowly, the listing could be postponed to as late as fall this year.

The trading app provider intends to disclose its financials and go ahead with its IPO as soon as the SEC’s review is complete, Bloomberg said, citing sources. The company confidentially submitted its S-1 filing to go public at the end of March.

Having launched its crypto-trading business in 2018, and it currently offers seven tradeable coins: bitcoin, bitcoin cash, bitcoin SV, dogecoin, ethereum, ethereum classic, and litecoin.

Christine Brown, head of Robinhood’s crypto operations, said in a blog post in April that growing demand for these assets led 9.5 million customers to trade crypto on its platform in the first quarter of this year, up from 1.7 million in the fourth quarter of 2020.

Robinhood’s application comes during a busy year for IPOs, including blank-check company listings, which have already topped 340 so far in 2021. The SEC’s staff has warned lawyers of delays to paperwork review for SPACs due to a backlog of work, Bloomberg reported.

The investing app rolled out an “IPO Access” service after its role in the meme-stock frenzy this year, allowing users to purchase shares of companies – including its own – at their IPO price before the stock starts to trade on open markets.

Robinhood didn’t immediately respond to Insider’s request for comment on its IPO.

Read More: A crypto and fintech expert explains why polkadot could surge by 521% within the next 3 years – and says it may become ethereum’s main competitor

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