Online Crypto and Stocks Trading App ‘Robinhood’ has agreed a settlement with state Regulators to end its case.
The California Department of Financial Protection and Innovation has announced that Robinhood, the company behind the stock trading and cryptocurrency platform, will likely pay more than $10 million in penalties as a result of operational and technical failures that harmed its investors.
The settlement came after an investigation by the North American Securities Administrators Association in collaboration with securities regulators from several US states. Robinhood’s system outages in March 2020 caused users to miss out on trades, while many of its services were unavailable.
The platform saw significant growth at the start of the COVID-19 pandemic when many people shifted to working from home and conducting online trades through the app.
However, Robinhood’s outages caused some affected users to file a class-action lawsuit against the company. The US Financial Industry Regulatory Authority (FINRA) also penalized the firm for roughly $70 million for causing “widespread and significant harm” to thousands of users.
According to the DFPI order, Robinhood was accused of “negligent dissemination of inaccurate information to customers” in relation to margin trading and risks with multi-leg option spreads, as well as failures related to services available to customers and transparency with FINRA and state regulators.
The company must now take its customer care obligations seriously and correct these deficiencies.
The New York Department of Financial Services (NYDFS), which was not involved in the NASAA investigation, announced a $30 million penalty on Robinhood’s crypto business arm in August 2022 for alleged violations related to anti-money laundering, cybersecurity, and consumer protection laws between January and September 2019.
The US Securities and Exchange Commission also issued an investigative subpoena against the firm in December 2022 for its crypto listings and custody services.
While Robinhood has neither admitted nor denied the regulators’ findings, the firm is set to pay up to $10.2 million in penalties. According to NASAA president Andrew Hartnett, the settlement makes it clear that Robinhood must take its customer care obligations seriously and correct these deficiencies.
Robinhood was accused of repeated failures to serve its clients, which led to a class-action lawsuit being filed against the firm.
There were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols.
This left Robinhood users unable to process trades even as the value of certain stocks was dropping. This settlement is expected to help ensure that Robinhood takes its customer care obligations seriously and corrects the deficiencies that have led to operational and technical failures harming its main street investors.
Robinhood Settles With Regulators
In conclusion, Robinhood, the company behind the stock trading and cryptocurrency platform, is set to pay more than $10 million in penalties due to operational and technical failures that harmed its investors.
The settlement, which came after an investigation by multiple US securities regulators, highlights Robinhood’s repeated failures to serve its clients. The firm must now take its customer care obligations seriously and correct the deficiencies that have led to these failures.
The penalties imposed on Robinhood by various regulators indicate the need for the company to comply with anti-money laundering, cybersecurity, and consumer protection laws to prevent similar issues in the future.