FINRA Orders Record Financial Sanctions Against Robinhood Financial LLC


WASHINGTON–(COMMERCIAL THREAD) – FINRA today announced that it has fined Robinhood Financial LLC $ 57 million and ordered the company to pay approximately $ 12.6 million in restitution, plus interest, to thousands of aggrieved customers. The sanctions represent the largest financial penalty ever ordered by FINRA and reflect the extent and seriousness of the violations. In determining the appropriate penalties, FINRA took into account the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the company, millions of customers affected by power outages. company systems in March 2020 and thousands of clients that the company allowed to trade options even when it was not appropriate for clients to do so.

“This action sends a clear message: All FINRA member firms, regardless of size or business model, must comply with the rules that govern the brokerage industry, rules designed to protect investors and the integrity of the brokerage industry. our markets. Following these rules is not optional and cannot be sacrificed in the name of innovation or the desire to ‘break things’ and fix them later, ”said Jessica Hopper, Executive Vice President and Chief of the FINRA Enforcement Department. “The fine imposed in this case, the highest ever imposed by FINRA, reflects the extent and seriousness of Robinhood’s violations, including FINRA’s finding that Robinhood communicated false and misleading information to millions of its customers. ”

First, FINRA found in its investigation that, despite Robinhood’s self-proclaimed mission to “demystify finance for all,” for certain periods since September 2016, the company has negligently communicated false and misleading information to its clients. The false and misleading information touched on a variety of critical issues, including whether clients could place trades on margin, how much money was in clients’ accounts, what was the purchasing power or “purchasing power”. negative ”clients, the risk of loss suffered by clients in certain option trades and whether clients have faced margin calls.

For example, a Robinhood client who had “deactivated” the margin tragically committed suicide in June 2020. In a note found after his death, he expressed his confusion as to how he could have used the margin to buy securities because, according to him, he had not “activated” the margin on his account. As stated in the settlement, Robinhood also displayed inaccurate negative cash balances to this person (and certain other clients). Additionally, due to Robinhood’s inaccuracies, thousands of other customers suffered total losses of over $ 7 million. As part of this settlement, Robinhood is required to pay over $ 7 million in restitution to these customers.

Second, FINRA found that since Robinhood started offering options trades to its clients in December 2017, the company has not done due diligence before allowing clients to enter options trades. . The company has relied on algorithms – known at Robinhood as “option account approval bots” – to approve clients for options trading, with only limited oversight by senior executives. society. These bots often approved of clients to trade options based on inconsistent or illogical information. As a result, Robinhood has approved thousands of clients for option trading who either did not meet the company’s eligibility criteria or whose accounts contained red flags indicating that options trading was not possible. – not be appropriate for them.

Third, FINRA found that, from January 2018 to February 2021, Robinhood did not reasonably oversee the technology it relied on to provide basic services to brokers, such as accepting and executing orders. client. Between 2018 and the end of 2020, Robinhood experienced a series of critical system failures and failures. The most serious outage occurred on March 2-3, 2020, when Robinhood’s website and mobile apps were shut down, preventing Robinhood clients from accessing their accounts during a period of historic market volatility. Although the company had a business continuity plan in place at the time of the March 2-3 outage, it did not implement it because the plan was unreasonably limited to events that impacted the location. physical business. Robinhood’s inability to accept or fulfill customer orders during these outages has cost individual customers tens of thousands of dollars, and FINRA demands that the company pay more than $ 5 million in restitution to affected customers. .

Additionally, between January 2018 and December 2020, Robinhood failed to report tens of thousands of written client complaints to FINRA that it was required to report. Robinhood’s reporting failures included complaints that Robinhood had provided customers with false and misleading information, and that customers had suffered losses due to outages and failures in the company’s systems. Robinhood’s reporting failures were primarily the result of a company-wide policy that exempted certain broad categories of complaints from reporting, even though those categories fell under FINRA’s reporting requirements. The settlement resolves many other charges against Robinhood, including the company’s inability to have a reasonably designed customer identification program and its inability to display complete information on market data.

In settling this case, Robinhood neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

About FINRA

FINRA is a non-profit organization dedicated to investor protection and market integrity. It regulates an essential part of the securities industry: brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, reviews and enforces compliance with FINRA rules and federal securities laws, registers and provides education and training for brokerage staff, and informs the investing public . In addition, FINRA provides oversight and other regulatory services for the equity and options markets, as well as transaction reports and other industry utilities. FINRA also operates a dispute resolution forum for investors and brokerage firms and their registered employees. For more information visit www.finra.org.

Investors can obtain more information about and the disciplinary record of any broker or brokerage firm registered with FINRA using FINRA’s BrokerCheck. FINRA makes BrokerCheck available free of charge. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors can access copies of this disciplinary action as well as other disciplinary documents in FINRA’s online disciplinary action database. Investors can also call FINRA Securities Hotline for Seniors at (844) 57-HELP for assistance or to report problems they have with their brokerage accounts and investments.

Previous Barclays to move investment bank staff to London headquarters
Next Live recap of value investing: Be