Online broker Robinhood will pay up to $10.2 million in penalties for operational and technical failures that harmed main street investors. This was announced by the North American Securities Administrators Association (NASAA).
Robinhood Financial LLC will pay up to $10.2 million in penalties for operational and technical failures that harmed main street investors. Details: https://t.co/23UQeqNjWU pic.twitter.com/fgDDgQJhou
— NASAA (@NASAA) April 6, 2023
The settlement resulted from investigations conducted by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas.
The regulators also noted that prior to March 2021, the online broker had deficiencies in handling options, margin accounts, monitoring tools, reporting and customer-service protocols.
“Today’s agreement presents the states with the best possible form — working together in the interests of ordinary investors. Robinhood has repeatedly failed to serve its customers, but this settlement clearly shows that the platform must take its obligations seriously and fix the deficiencies,” said NASAA President Andrew Hartnett.
The regulator’s order notes the following violations by Robinhood:
- careless dissemination of inaccurate information about margin and risks associated with spreads in complex options;
- lack of a reasonably designed customer-identification program;
- inability to control technologies that are critical to providing broker-dealer services;
- lack of an adequate system for processing customer requests;
- failure to submit all user complaints to FINRA and state regulators as required.
The company did not admit fault and did not challenge the order’s findings.
In 2021, Robinhood settled a dispute with FINRA, paying a record $70 million penalty. The company then hired an independent compliance consultant to address regulator-identified deficiencies and largely did so, according to the press release.
Exactly one year after the current settlement, the broker must certify to Alabama, the lead state in the investigation, that it fully complies with all requirements.
Alabama Securities Commission Director Joseph Borg stressed that regulators found no evidence of willful or fraudulent conduct by Robinhood, and that the company fully cooperated with the investigation.
Earlier in 2022, the online broker agreed to pay $9.9 million to a group of customers as part of a class-action settlement over systemic platform outages.