Robinhood will pay around $ 70 million in fines for its system-wide failures and misleading communications and trading practices, the Financial Industry Regulatory Authority said on Wednesday.
The comparison relates to the technical outages Robinhood experienced in March 2020, Robinhood’s lack of diligence before allowing clients to authorize option trades, and the provision of misleading information to clients on aspects such as margin trading. The stock market plunged into particularly wild trading this month amid the outbreak of the Covid-19 pandemic.
FINRA – a self-regulatory organization that oversees brokerage firms and their registered agents – said it fined Robinhood $ 57 million and ordered the stock trading app to pay nearly $ 13 million in refunds to thousands of customers.
“FINRA took into account the widespread and significant damage that customers have suffered, including millions of customers receiving false or misleading information from the company, millions of customers affected by the company’s system outages in March 2020, and thousands of customers Customers that the company has even allowed to trade in options when it was not appropriate for the customers, “the organization said in a statement.
Robinhood – expected to go public this year – suffered from outages on several days from the beginning of March 2020, so that customers were no longer able to trade stocks, options or cryptocurrencies. The platform stayed offline during some of its busiest trading days amid the fastest bear market in history.
The popular online broker has also been criticized for the death of a 20 year old trader who killed himself after believing he made huge losses with Robinhood. The suicide was mentioned in the FINRA press release.
Robinhood has neither admitted nor denied the allegations.
“Robinhood has invested heavily in improving platform stability, improving our educational resources, and expanding our customer support and legal and compliance teams,” said Jacqueline Ortiz Ramsay, director of public policy communications at Robinhood, in response to the fine. “We’re happy to leave this behind and look forward to continuing to focus on our customers and democratizing finance for everyone.”
Robinhood said it now has approximately 2,700 account managers, the brokerage firm said in a blog post. That is more than three times the workforce in March 2020.
The Menlo Park, Calif., Company predicted the fine and made $ 26.6 million available for settlement according to an annual SEC review. however, the fine is more than double the amount reserved.
“The fine imposed on this matter, the highest fine ever imposed by FINRA, reflects the scope and gravity of Robinhood’s violations, including FINRA’s finding that Robinhood provided false and misleading information to millions of its customers,” said Jessica Hopper , Executive Vice President and Head of FINRA’s Enforcement Department.
Finra fined Robinhood $ 1.25 million in 2019 for best execution violations.
Robinhood is expected to go public with a valuation of over $ 30 billion in the coming months.
– with coverage by Kate Rooney of CNBC.
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