Robinhood to pay record $70M fine
‘One Robinhood customer who had turned margin ‘off,’ tragically took his ’ own life in June 2020. — FINRA
Robinhood has agreed to pay nearly $70 million to settle a regulatory investigation into allegations that it misled customers, failed to appropriately vet certain traders, and didn’t supervise technology, leading to outages for millions of users.
The Financial Industry Regulatory Authority announced the settlement on Wednesday, calling it “the largest financial penalty ever ordered by FINRA.”
FINRA said that Robinhood will pay $57 million as a fine and $12.6 million to compensate “thousands of harmed customers.”
It’s a blow to the rapidly growing commission-free trading app that’s been both hailed for increasing access to the stock market by removing fees as well as criticized for gamifying the market.
In announcing the settlement Wednesday, FINRA said Robinhood made a number of false and misleading statements to customers since 2016, including claims about who could trade on margin and how much money was in users’ accounts.
“For instance, one Robinhood customer who had turned margin ‘off,’ tragically took his own life in June 2020,” FINRA wrote in announcing the agreement.
“In a note found after his death, he expressed confusion as to how he could have used margin to purchase securities because, he believed, he had not ‘turned on’ margin in his account.” People trading on margin use borrowed money to trade.
FINRA also said that Robinhood failed to appropriately review and authorize users who applied to use a potentially more risky form of trading called options trading, in which people buy contracts that give the holder the right to buy or sell a security at a future date.
Robinhood neither admitted nor denied the charges as part of its settlement.
“This action sends a clear message — all FINRA member firms, regardless of their size or business model, must comply with the rules,” said FINRA’s Jessica Hopper.