Tuesday, November 30, 2021
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Robinhood ordered to pay $70m penalty to US regulator

A Wall Street regulator has ordered the Robinhood retail platform to pay more than $ 70 million in penalties for causing what he described as “widespread and significant” harm to its customers.

The Financial Sector Regulatory Authority (Finra) announced on Wednesday that it was fining Robinhood $ 57 million and ordering it to pay $ 12.6 million plus restitution interest to its clients, the biggest penalty ever ordered by the regulator.

Amid a litany of failures alleged by Finra, widespread technical issues on the platform during times of high volatility have cost some traders tens of thousands of dollars, he said.

Robinhood also allowed thousands of clients to trade risky derivatives when it was “not appropriate” for them, according to the regulator, and gave clients false or misleading information about the amount of money in their bank. accounts, their ability to trade on margin and the risk of losses on derivative transactions.

Finra cited the suicide death of a young Robinhood client last year, who mistakenly believed he suffered $ 730,165 in losses on a margin trade. In fact, his account had a balance of $ 16,000. In a note found after his death, he said he did not believe he had “activated” margin trading on his account.

For more than five years, Robinhood had “failed to establish and maintain” a system to comply with securities regulations, Finra said.

“Following these rules is not optional and cannot be sacrificed in the name of innovation or the willingness to ‘break things’ and fix them later,” said Jessica Hopper, head of department. execution of Finra.

Responding to Finra’s action, the company said, “Robinhood has invested heavily in improving the stability of the platform, improving educational resources, and strengthening our customer support and legal teams. and compliance. We are happy to put this business behind us and look forward to continuing to focus on our clients and democratizing finance for all. (Later today, the company also published a blog post describing how it tries to better “meet its accountability to its customers.”)

The sanctions come as Robinhood plans a stock market listing to capitalize on a period of explosive growth. The stock broker has become synonymous with the rise of retailing since the start of the pandemic and the boom in “same stock” trading. It has more than doubled the number of users on its platform over the past year, from 13 million at the end of March 2020 to 31 million currently, according to Finra.

Another problem reported by Finra was the opening of questionable accounts. Until the end of 2018, Robinhood automatically opened numerous accounts despite warnings of potential identity fraud, including over 100 accounts where there was a “high probability that the client’s social security number belonged to a deceased person.” . Robinhood also failed to inform Finra of tens of thousands of customer complaints it was required to report, the regulator said.

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