By Valerie Atoh
Robinhood, the popular investment platform, has agreed to pay a $10.2 million penalty after an investigation by some state securities regulators found that the company had harmed investors. The probe was sparked by outages on the platform in March 2020 during the height of the pandemic, leading to widespread frustration and concern among users.
Investigation Reveals Operational Shortcomings in Robinhood’s Practices
Robinhood, the prominent fintech company known for its popular cryptocurrency and stock trading platform, has been ordered to pay a staggering $10.2 million in penalties. The fine, imposed by seven state securities regulators, comes in the wake of the company’s platform outages back in March 2020, which left countless main street investors in the lurch. The California Department of Financial Protection and Innovation projects the penalties to exceed $10 million, as the regulators seek to hold Robinhood accountable for the operational and technical failures that occurred during the height of the pandemic.
State securities regulators uncovered numerous operational shortcomings in their investigation of the California-based brokerage firm Robinhood, known for pioneering free stock trades for retail customers. Regulators found that the company neglected to perform proper due diligence prior to allowing options trading, failed to report complaints to the appropriate regulatory body, and lacked proper oversight of the technology required to deliver essential broker-dealer services, among other issues.
The recent settlement emphasizes that Robinhood must take its responsibilities towards customer care seriously and rectify these inadequacies. This sentiment was echoed by the North American Securities Administrators Association President Andrew Hartnett in a public statement.
Additionally, during March 2020, the platform experienced a series of system failures, leading to clients being unable to execute trades and access many of the site’s features. The settlement’s terms were accepted by a group of states, including Alabama, California, Colorado, Delaware, New Jersey, South Dakota, and Texas.
Robinhood Criticized for Platform Disruptions and Inadequate Procedures
In March 2020, Robinhood faced criticism as its platform suffered disruptions, impacting countless investors attempting to execute trades through the app. Regulators assert that prior to March 2021, Robinhood exhibited “shortcomings” in its evaluation and approval procedures for options and margin accounts. The platform’s customer service and escalation processes were deemed insufficient, as some users were unable to complete trades while certain stock prices declined.
The company has been charged with “carelessly spreading incorrect information to clients” and not maintaining an adequately designed customer identification program.
According to regulators, Robinhood was unable to effectively oversee crucial technology for delivering fundamental broker-dealer services to its customers. Additionally, the company did not report all client grievances to the Financial Industry Regulatory Authority and state authorities.
The California Department of Financial Protection and Innovation stated that Robinhood neither admitted nor denied the allegations. The firm was said to have fully cooperated fully during the investigation, with no evidence discovered of intentional or deceitful behavior.
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