Robinhood, the popular cryptocurrency and stock trading platform, is set to pay over $10 million in penalties for operational and technical failures that harmed investors, according to the California Department of Financial Protection and Innovation (DFPI). The settlement, which could reach up to $10.2 million, was the result of an investigation by the North American Securities Administrators Association and securities regulators from several states, including California, Colorado, and New Jersey.
In an April 6 announcement, The DFPI accused Robinhood of repeatedly failing to serve its clients and failing to take its customer care obligations seriously. The platform suffered a series of system outages in March 2020, causing users to miss out on trades and making many of Robinhood’s services unavailable. These outages prompted affected users to file a class action lawsuit against the company.
Robinhood experienced significant growth at the start of the COVID-19 pandemic as many people shifted to working from home and conducting online trades through the app. However, the platform’s outages caused widespread harm, resulting in a $70 million penalty from the U.S. Financial Industry Regulatory Authority (FINRA) for causing significant harm to thousands of users.
According to the DFPI order, Robinhood had deficiencies in its review and approval process for options and margin accounts, weaknesses in its monitoring and reporting tools, and insufficient customer service and escalation protocols that, in some cases, left users unable to process trades. The order accused Robinhood of negligent dissemination of inaccurate information to customers in regard to margin trading and risks with multi-leg option spreads, as well as failures related to services available to customers and transparency with FINRA and state regulators.
As part of the settlement, Robinhood “neither admits nor denies” the regulators’ findings, which did not include evidence of “willful or fraudulent conduct.” However, the company is facing additional penalties from the New York Department of Financial Services and the U.S. Securities and Exchange Commission. In August 2022, the New York Department of Financial Services announced a $30 million penalty on Robinhood’s crypto business arm for alleged violations related to anti-money laundering, cybersecurity, and consumer protection laws between January and September 2019.
Additionally, the U.S. Securities and Exchange Commission issued an investigative subpoena against the firm in December 2022 for its crypto listings and custody services.
