• Robinhood has been ordered to pay over $10 million in penalties to numerous US states for harming investors.
• The California Department of Financial Protection and Innovation (DFPI) joined a multi-state settlement with Robinhood.
• Last summer, the company was also fined $30 million by the New York State Department of Financial Services (NYDFS).
Robinhood Fined for Negligence
The California Department of Financial Protection and Innovation (DFPI) has joined a multi-state settlement with Robinhood, which will result in the company paying approximately $10.2 million in fines for registering operational deficiency that negatively affected investors during the COVID-19 crisis.
Previous Trouble For Robinhood
Prior to this agreement, regulators from Alabama, Colorado, New Jersey, Delaware, Texas, and South Dakota have alleged that the firm failed to adequately inform users about the risks associated with multi-leg option spreads, did not design a customer identification program, and did not exercise due diligence before approving certain option accounts. They further maintain that it did not cooperate with FINRA or other relevant agencies.
Violations Occurred During COVID Crisis
The operational setbacks occurred in March 2020 at the beginning of the devastating COVID-19 pandemic when hundreds of traders were targeted by GameStop stock’s historic rallies on Reddit forums. Many traders bought large amounts of stocks only to find out later on that their orders had been blocked due to technical issues from Robinhood’s side.
Multi-Million Agreement Reached
Under this agreement between DFPI and Robinhood, the firm must pay a fine of approximately $10.2 million as well as meet certain requirements such as better informing its customers about options trading risks and providing additional training to personnel involved in compliance processes among others. This comes after they were fined $30 million last summer by NYDFS for violating anti-money laundering and cybersecurity laws as well.
Overall, despite being known as one of today’s most popular retail brokerages among young investors, these recent settlements highlight some serious issues within their operations that need to be addressed promptly in order to protect investor interests going forward.