Robinhood Pays $70 Million to Resolve Regulatory Allegations

It appears that Robinhood faces yet another obstacle in the path towards its planned IPO: the company has agreed to pay roughly $70 million to settle a number of regulatory allegations that accuse the online brokerage of misleading traders, approving unqualified customers for risky strategies, and not properly overseeing technology that ended up locking millions of customers out of trading activity.

According to the Wall Street Journal, Robinhood has agreed to resolve a number of allegations brought forth by the Financial Industry Regulatory Authority (Finra), the industry’s self-regulatory body, that have added to the trading platform’s ongoing list of problems. Although Robinhood didn’t deny or confirm the claims, the online brokerage was slapped with a $57 million fine, as well as ordered to pay $12.6 million in restitution fees to affected customers.

According to Finra, Robinhood failed to adequately supervise its technology, which ultimately resulted in the approval of new accounts that were opened via identity theft and other fraud. Similarly, the online app also approved thousands of accounts for trade options even though the account holders failed to meet eligibility criteria. Finra also accused Robinhood of inaccurately telling traders that the app would not allow them to use margin to complete options trades if they turned the feature off. As a result, customers were still able to use borrowed money if the executed certain trades.

The regulatory body’s investigation also alleged that Robinhood’s app suffered a number of technology outages resulting in service disruptions that prevented over 12.5 million users from conducting trading activity. In addition, the affected customers’ concerns were not adequately addressed because Robinhood’s customer-service channels were also experiencing technology problems.

Although the latest fine will likely ruffle some feathers for the company’s executives, the trading app’s revenue growth has tripled in just the first quarter of 2021. According to the Finra settlement document published Wednesday, the brokerage platform now has 31 million users, of which 18 million hold funded accounts.

Information for this briefing was found via the WSJ. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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