Stock-trading app Robinhood has been ordered to pay nearly $70m by financial regulators in the US for ‘misleading its customers’ and left them out of pocket.
The app climbed to fame amid the Gamestop meme-stock rally at the beginning of the year.
The US’s Financial Industry Regulatory Authority, known as FINRA, reported that Robinhood inflicted “widespread and significant harm” to customers by offering them false information about their investments.
FINRA, which has federal authority to regulate financial firms, said the app also failed to do proper due diligence before approving customers for complex trades called options.
The fine is the largest the financial watchdog has ever handed out, FINRA said, adding that it “reflects the scope and seriousness of Robinhood’s violations.”
Settling with FINRA yesterday, Robinhood neither admitted nor denied the charges.
“Robinhood has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams,” Robinhood head of public policy communications Jacqueline Ortiz Ramsay said in response to the fine. “We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all.”
‘These rules are not optional’
As part of the overall settlement with the company, the regulator ordered Robinhood to pay more than $12m to the Kearns family and thousands of other customers.
The parents of Alex Kearns filed a lawsuit against Robinhood when Alex mistakenly believed he owed $730,000 when he took his own life.
Kearns parents said they did not know the app had also approved him to buy and sell options – a risky financial instrument – despite a lack of financial experience.
“He thought he blew up his life. He thought he screwed up beyond repair,” Kearns’ father said in an interview with CBS, in which he said his son had “just needed a little help”.
FINRA’s head of enforcement, Jessica Hopper, said: “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.”
“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.”
It is not the first fine Robinhood has received. Last year, the federal Securities and Exchange Commission fined the app $65m for misleading stock market customers about how the company generates revenue from trades.
And in 2019, FINRA fined the app $1.25m for routing customers’ orders through four brokerages, paying it to do so, without ensuring orders were completed for the best possible price.