Baller Alert Its A Lifestyle
On Wednesday, Wall Street’s industry regulator fined Robinhood Financial LLC $70 million for “systemic” failings, including system outages, offering “false or misleading” information, and having poor options trading controls, all of which hurt millions of the app’s consumers.
The penalty imposed by the Financial Industry Regulatory Authority (FINRA) is the latest blemish on Robinhood’s record. Following this year’s meme-stock crisis, which highlighted issues about the California firm’s business strategy, risk management, and client treatment, federal and state officials scrutinize the broker, which has been lauded with democratizing trading.
The wide agreement, which settles alleged FINRA violations going back to September 2016, will likely open the way for the firm to resume its planned initial public offering, which has been delayed due to meme-stock backlash and other regulatory concerns.
FINRA said in a statement that Robinhood’s settlement with the agency includes $12.6 million in restitution to thousands of clients as well as a $57 million penalty, the highest in the regulator’s history, and covers a range of concerns dating back to September 2016.
Jessica Hopper, Head of Enforcement at FINRA, said, “The fine… reflects the scope and seriousness of Robinhood’s violations, including FINRA’s finding that Robinhood communicated false and misleading information to millions of its customers.”
Those communications, according to FINRA, were on whether clients could trade on leverage, how much cash was in their accounts, how much buying power they had, the risk of losing customers faced in particular transactions, and whether customers were subject to margin calls.
A Robinhood user committed suicide in 2020 after getting perplexed by notifications in his account that appeared to imply he had switched off margin trading and incorrectly displayed a negative cash balance, according to FINRA. According to FINRA, thousands of additional consumers lost more than $7 million due to identical misstatements.
Robinhood also failed to adequately manage its technology between 2018 and late 2020, resulting in a “series of outages and critical systems failures,” including a major outage during the pandemic turmoil of March 2020, which resulted in clients losing money, according to FINRA.
FINRA claimed that Robinhood failed to adequately assess consumers before allowing them to make dangerous option bets over the same time period.
Robinhood did not accept or deny the allegations but agreed to FINRA’s conclusions. In a statement, the corporation claimed it was restructuring its operations, implementing new supervisory and communications protocols, and hiring a host of attorneys, including former regulators.
“There’s a clear message: You can try to democratize investing and demystify finance, but you can’t cut corners,” said Robert Frenchman.
“It’s good because it clears up such a wide range of issues that now they can say they have settled with regulators. I can see the value – it’s a lot of money – in settling on such a salad of FINRA violations.”
