The Financial Industry Regulatory Authority announced that Robinhood will pay nearly $70 million in penalties for systemwide breakdowns and misleading communication and trading practices.
The settlement addresses technical issues that Robinhood encountered in March of 2020, as well as Robinhood’s lack of due diligence before permitting consumers to execute options trades and providing customers with inaccurate information regarding topics such as margin trading.
During that month, the stock market was crashing in particularly frenzied trading due to the advent of the Covid-19 pandemic.
The penalty imposed by the Financial Industry Regulatory Authority (FINRA) is the latest dent on Robinhood’s record.
Following this year’s meme-stock crisis, which highlighted issues about the California firm’s business strategy, risk management, and customer treatment, federal and state officials are scrutinizing the broker, which has been lauded with democratizing trading.
FINRA said in a statement that Robinhood’s settlement with the agency includes $12.6 million in restitution to thousands of customers 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.
“The fine… reflects the depth and seriousness of Robinhood’s wrongdoing, including FINRA’s findings that Robinhood provided millions of its customers with incorrect and misleading information,” stated Jessica Hopper, FINRA’s Head of Enforcement.
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 as a result of identical misleading statements.
Robinhood also failed to adequately manage its technology between 2018 and late 2020, resulting in a “series of disruptions and catastrophic system failures,” including a major outage during the pandemic turmoil of March 2020, which resulted in clients losing money, according to FINRA.
FINRA also claimed that Robinhood failed to adequately assess customers before allowing them to make risky option bets.
Robinhood was fined $1.25 million by FINRA, a regulatory authority that reports to the Securities and Exchange Commission (SEC), in 2019 for order execution failures.
The Securities and Exchange Commission (SEC) has also scrutinized Robinhood, fining the company $65 million last year to settle claims that it misled users about its income streams.
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