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Robinhood’s record-setting settlement with FINRA

by | Jul 8, 2021 | FINRA

Founded in 2013, Robinhood, a California-based financial services company, touts commission-free investing via a mobile app introduced two years after its inception. Many in the industry consider the company’s inception a turning point in popularizing retail trading involving inexperienced investors and forcing other companies to introduce no-cost trades to stay competitive.

Eight years after Robinhood changed an industry, the company saw its innovative methods earning the distinction of receiving the largest financial penalty levied in the history of the Financial Industry Regulatory Authority (FINRA).

A $70 million penalty for significant harm to customers

In a settlement, the company must pay $57 million in fines and $12.6 million in restitution (plus interest) to thousands of their customers following sanctions imposed on them by FINRA. The self-regulatory organization cites “significant harm” to customers impacted by Robinhood’s multiple systems outages without continuity plans in place that started in March 2020. It also coincided with significantly high trading volumes where thousands of customers were inappropriately approved to trade options.

The report mentions a specific Robinhood customer. Alex Kearns took his own life under the belief that he suffered significant losses due to the company relaying false and misleading data to its customers on how much customer case was “on hand,” not to mention loss risks and margin calls.

The company claims that significant investments have gone into improvements and enhancements, specifically restructuring their legal, compliance, and anti-fraud functions while strengthening customer service, technology, and options trading supervision.

Even though Robinhood agreed to accept the settlement, they remain silent on the validity of the accusations. Many in the investment industry see the $70 million penalty as not only a strong message but also growing pains the company can hopefully learn from, particularly in the face of an anticipated IPO.

FINRARobinhood’s record-setting settlement with FINRA
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