Robinhood ordered to pay $70m fine for misinformation

By Aisling Finn on Thursday 1 July 2021

Savings and Investment

The fintech must pay a $57m fine plus $12.6m in compensation to tens of thousands of customers, the largest fine the regulator has ever dished out.

Robinhood ordered to pay $70m fine for misinformation
Image source: Co-founders and co-CEOs of Robinhood Baiju Bhatt and Vladimir Tenev

Just before the world went into lockdown, Robinhood suffered an outage on a day when the US stock market surged some $1.1 trillion.

And now, as a result of the outage, Robinhood has been ordered to pay a $57m fine as well as a $12.6m reimbursement to customers by the Financial Industry Regulatory Authority (FINRA).

The sanctions against the trading and investment platform are the largest ever ordered by FINRA and “reflect the scope and seriousness of the violations.”

“This action sends a clear message—all FINRA member firms, regardless of their size or business model, must comply with the rules that govern the brokerage industry, rules which are designed to protect investors and the integrity of our markets,” Jessica Hopper, executive vice president and head of FINRA’s department of enforcement, said.

“Compliance with these rules is not optional and cannot be sacrificed for the sake of innovation or a willingness to ‘break things’ and fix them later. The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood’s violations, including FINRA’s finding that Robinhood communicated false and misleading information to millions of its customers.”

Just weeks after the shortage, Robinhood began offering customers $75 compensation if they had been affected by the outage, but in accepting the cash, they signed away their rights to further legal action.

The initial compensation was not enough for many customers who had reportedly lost thousands, if not tens of thousands, in misplaced or missed bets thanks to Robinhood’s outage. 

FINRA’s decision took several years of evidence into consideration, with the regulator looking back to September 2016 when “the firm has negligently communicated false and misleading information to its customers.”

Since December 2017, Robinhood has also failed to exercise due diligence before approving customers’ options trades. 

The fintech relied on “inconsistent or illogical information” provided by its ‘option account approval bots’, as they’re called at Robinhood, and approved thousands of customers options trading that didn’t meet the fintech’s eligibility criteria.

FINRA’s investigation also found that Robinhood failed to properly oversee its brokerage services, such as accepting and executing customer orders, between January 2018 and February 2021.

The most serious outage of which, was the one in March 2020, that saw customers miss out on the historic market volatility at the time.

During the same period, Robinhood also failed to report tens of thousands of written customer complaints to FINRA that it was required by law to do, with many of the complaints pointing towards the issues laid out in FINRA’s decision.

Robinhood neither admitted nor denied the charges against it. 

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