Robinhood pays US states $10 million “for failing investors”

The California Department of Financial Protection and Innovation stated that Robinhood will likely pay more than $10 million in fines “for operational and technical failings that harmed retail investors.”

The North American Securities Administrators Association and securities regulators from Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas conducted the investigation that resulted in the settlement of up to $10 million, the DFPI stated in a press release dated April 6. In March 2020, the platform experienced a series of system disruptions that prevented users from executing transactions and rendered many of its services unavailable.

This settlement makes it apparent that Robinhood must take its customer service obligations seriously and remedy these deficiencies, according to Andrew Hartnett, the president of the NASAA.

At the beginning of the COVID-19 pandemic, when many people began working from home and conducting online transactions through the app, Robinhood experienced significant growth.

However, some affected users filed a class action lawsuit against Robinhood due to the platform’s disruptions.

The U.S. Financial Industry Regulatory Authority, or FINRA, also fined the company approximately $70 million for causing “significant and pervasive damage” to thousands of users.

“There were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping.”

The DFPI order accuses Robinhood of “negligent dissemination of inaccurate information to customers” in regard to margin trading and the risks associated with multi-leg option spreads, as well as failings related to customer service and transparency with FINRA and state regulators.

As part of the settlement, Robinhood “neither acknowledges nor denies” the findings of the regulators, which lacked evidence of “willful or fraudulent conduct.”

The New York Department of Financial Services, which was not involved in the NASAA investigation, announced a $30 million sanction against Robinhood’s crypto business subsidiary in August 2022 for alleged violations of AML, cybersecurity, and consumer protection laws between January and September 2019. In December 2022, the U.S. Securities and Exchange Commission issued a subpoena to the company for its crypto listings and custody services.