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June 30, 2021 at 01:13 PM
What You Need to Know
- FINRA fined Robinhood $57 million and ordered it to pay about $12.6 million in restitution to clients.
- The regulator cited a litany of offenses, including communicating false and misleading information to customers and major trading platform outages.
- Within 60 days, an officer of Robinhood is to submit to FINRA a signed, written certification that the firm stopped making false or misleading statements.
Robinhood’s compliance and regulatory woes have increased as the Financial Industry Regulatory Authority fined the firm $57 million and ordered it to pay about $12.6 million in restitution, plus interest, to what FINRA said were “thousands of harmed customers.”
“The sanctions represent the largest financial penalty ever ordered by FINRA and reflect the scope and seriousness of the violations,” the industry self-regulator said on Wednesday.
Without admitting or denying FINRA’s findings, Robinhood signed a FINRA letter of acceptance, waiver and consent on June 22 in which it consented to the imposition of FINRA’s sanctions against it.
The sanctions also included agreements that Robinhood will retain a third-party consultant and that, within 60 days of FINRA’s issuance of its notice of acceptance of the AWC, an officer of Robinhood will submit to FINRA a signed, written certification that the firm stopped making the false or misleading statements described in the AWC.
Robinhood’s Response
“Robinhood has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams,” Jacqueline Ortiz Ramsay, head of public policy communications at Robinhood, said in a statement provided to ThinkAdvisor.
“We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all,” she added.
Robinhood also published a blog post focusing on what the company said were the many changes it made over the last several years for the benefit of its clients.
In a corrective action statement included at the end of the AWC, Robinhood said the remedial measures it had undertaken since early 2020 included: enhancing its legal, compliance, risk and antifraud functions; strengthening its supervisory structure; remediating client communications and data displays; expanding client support; and improving supervision of options.
‘Widespread and Significant Harm’
In determining the appropriate sanctions, FINRA said it “considered the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the firm, millions of customers affected by the firm’s systems outages in March 2020, and thousands of customers the firm approved to trade options even when it was not appropriate for the customers to do so.”
FINRA found in its investigation that, despite Robinhood’s self-described mission to “de-mystify finance for all,” during certain periods since September 2016, the company “negligently communicated a wide array of false and misleading information to its customers,” FINRA said in the AWC.
The false and misleading information concerned various critical issues, including whether customers could place trades on margin, how much cash was in customers’ accounts, how much buying power or “negative buying power” customers had, the risk of loss customers faced in certain options transactions, and whether clients faced margin calls, according to FINRA.
For example, one young Robinhood investor who had turned margin “off” committed suicide in June 2020, FINRA said. In a note found after that client’s death, he expressed confusion as to how he could have used margin to buy securities because he believed he had not “turned on” margin in his account, according to FINRA. Robinhood also displayed to that investor (and certain other clients) inaccurate negative cash balances.
