The Financial Industry Regulatory Authority (FINRA) said Wednesday that it had fined Robinhood $57 million and ordered the company to pay approximately $12.6 million in restitution, plus interest, to thousands of harmed customers. FINRA said in a statement that the amount of the penalties “reflect the scope and seriousness of the violations,” and that it took into account the “widespread and significant harm suffered by customers.” This isn’t the first time Robinhood has run afoul of regulators. In December, the broker agreed to pay $65 million to settle allegations from the U.S. Securities and Exchange Commission that the investment platform misled customers and provided overpriced trades. Meanwhile, Massachusetts regulators filed a complaint in December against the company for luring inexperienced investors to its app and not doing enough to protect them from outages and disruptions on its platform. In April, Massachusetts moved to revoke the company’s license in that state, and Robinhood responded by filing a preliminary injunction to prevent the case from going forward. Robinhood, which started operating in 2013 and saw its users grow to 13 million by May 2020, has also ruffled the feathers of FINRA in the past. It was only about a year and a half ago that FINRA fined the company for best-execution violations, saying that it routed customers’ equity orders to four broker-dealers, all of which paid Robinhood for that order flow, without ensuring that customers were getting the best prices. The penalty then was only $1.25 million. This time was different. “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,” said Jessica Hopper, executive vice president and head of FINRA’s Department of Enforcement, in a statement. Robinhood neither admitted nor denied the charges, but consented to FINRA’s findings. “We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all,” said Jacqueline Ortiz Ramsay, head of public policy communications at Robinhood, in an email. FINRA said it had found that Robinhood misled customers on a variety of critical issues, including whether they could place trades on margin, how much cash was in their accounts, the risk of loss customers faced in certain options transactions, and whether customers faced margin calls. The company also failed to report to FINRA tens of thousands of written customer complaints. Ortiz Ramsay noted that “Robinhood has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams.” She pointed to the company’s blog, where Robinhood listed on Wednesday changes it has made to put safeguards in place to address regulators’ concerns. They include more customer service representatives, educational pieces, supervisory structures and improved communication and data displays. Have a question, comment, or story to share? You can reach Medora at medoralee@thebalance.com.
