Robinhood has agreed to pay a record $70 million regulatory fine for allegedly harming millions of US consumers through misleading and shoddy practices.
The penalty comes from the Financial Industry Regulatory Authority (FINRA), which helps oversee the US brokerage industry alongside the SEC. On Wednesday, the regulator announced the fine, which also involves Robinhood paying $12.6 million in restitution to affected consumers.
“The sanctions represent the largest financial penalty ever ordered by FINRA and reflect the scope and seriousness of the violations,” the regulator said.
FINRA imposed the fine after launching an investigation that covers the company’s activities from 2016 and the period during the meme stock craze, which drove traffic to the Robinhood app this past January.
The investigation cites numerous instances of Robinhood misleading users through various functions and buying processes on the app. For example, whether customers could place trades on margin, how much cash was in customers’ accounts, and how much buying power they had. The company also allegedly failed to prevent service outages, including a major one in March 2020, that temporarily stopped trades from going through.
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“From January 2018 to February 2021, Robinhood failed to reasonably supervise the operation and maintenance of its technology,” the regulator wrote. According to the investigation, Robinhood also never sent FINRA “tens of thousands of customer complaints” that it was required to report.
“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,” said FINRA’s head of department enforcement Jessica Hopper in a statement.
In addition, FINRA investigated the death of former Robinhood user Alex Kearns, who died by suicide believing he owed hundreds of thousands of dollars after making a risky stock bet. FINRA found the app had displayed inaccurate negative cash balances to Kearns and other users. “As part of this settlement, Robinhood is required to pay more than $7 million in restitution to these customers,” the regulator said.
Overall, the report portrays Robinhood as a negligent financial company riddled with dysfunction. But according to FINRA, the company agreed to pay the fine as a settlement, which means Robinhood “neither admitted nor denied the charges.” The app currently has over 31 million users, FINRA adds.
In response to the penalty, Robinhood said it’s been investing heavily in “improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams.”
“We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all,” the company added. On the same day, Robinhood also published a blog post going over its efforts to improve the app and customer support.