The Financial Industry Regulatory Authority (FINRA) has handed Robinhood a record-setting $57 million fine and also ordered the investing giant to pay $12.6 million in restitution over what the regulator called “systemic supervisory failures” that harmed millions of customers.
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The penalty resolves a litany of allegations against the popular trading app related to its communications with customers, its management of options trading and service outages the platform experienced last year.
According to the regulator’s announcement, Robinhood also received tens of thousands of written customer complaints that it failed to report to FINRA between January 2018 and December 2020. It was also noted that the $57 million fine was the “highest ever levied by FINRA” and “reflects the scope and seriousness of Robinhood’s violations.”
“This action sends a clear message — all FINRA member firms, regardless of their size or business model, must comply with the rules that govern the brokerage industry, rules which are designed to protect investors and the integrity of our markets,” Jessica Hopper, executive vice president and head of FINRA’s enforcement department, said in a statement. “Compliance with these rules is not optional and cannot be sacrificed for the sake of innovation or a willingness to ‘break things’ and fix them later.”
While they did not admit or deny the allegations, Robinhood consented to the entry of FINRA’s findings and said Wednesday it has “invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams.”
“We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all,” the company said in a statement.
The lengthy settlement order details a slew of alleged violations by Robinhood, including: misleading customers about their ability to trade on margin and “disable” margin on their accounts, displaying incomplete market data information on its website and mobile applications, failing to maintain an appropriate customer identification program between June 2016 and November 2018, and failing to tell FINRA about “tens of thousands of customer complaints.”
According to FINRA, the company also displayed inaccurate cash balances to certain customers that were sometimes twice as large as they actually were, issued erroneous margin calls and margin call warnings to some customers and misrepresented the risks associated with certain options transactions.
The order said these misrepresentations have “confused some customers,” drawing attention to a widely reported story from last summer of a 20-year-old man who died by suicide after the Robinhood app showed him a $730,000 loss on options trading.
FINRA previously fined Robinhood in December 2019 over accusations that the company failed to provide “best execution” for its customers. The U.S. Securities and Exchange Commission, which oversees FINRA, fined Robinhood $65 million last year for allegedly failing to disclose an order routing arrangement that led to millions in customer losses.
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Source:https://www.law360.com/articles/1399110/robinhood-to-pay-record-70m-finra-penalty
