California Joins Other States in $10 Million Robinhood Settlement for Failing Investors
California Joins Multiple States in $10 Million Settlement with Robinhood for Failing Investors
The Robinhood Financial LLC will pay up to $10.2 million in fines for operational and technical errors that harmed regular investors, according to a multi-state settlement that the California Department of Financial Protection and Innovation (DFPI) has joined.
The North American Securities Administrators Association (NASAA) investigation into the operational shortcomings of Robinhood in the retail market was led by state securities regulators from Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas.
In March 2020, when hundreds of thousands of investors were depending on the Robinhood app to execute trades, there were outages on the Robinhood platform, which served as the catalyst for the investigation. Prior to March 2021, Robinhood also had issues with its review and approval procedures for options and margin accounts, flaws in its monitoring and reporting tools, and inadequate customer service and escalation procedures that occasionally prevented users from making trades even as the value of particular stocks was falling.
According to NASAA President Andrew Hartnett, "Today's multistate agreement represents states at their best - working together for the benefit of Main Street investors." Robinhood repeatedly failed to provide for the needs of its customers, but this settlement makes it clear that it must take these shortcomings seriously and address them.
Robinhood neither admits nor denies the findings set forth in the orders of the states.
The following violations are listed in the order:
- Negligent customer disclosure of inaccurate information, including margin and risk associated with multi-leg option spreads.
- Failure to implement a reasonable customer identification program.
- Failure to supervise technology critical to providing core broker-dealer services to customers.
Inadequately designed system for dealing with customer inquiries. - Failure to conduct adequate due diligence prior to approving certain option accounts.
- Failure to report all customer complaints, as required, to the Financial Industry Regulatory Authority (FINRA) and state securities regulators
settling states will have access to a FINRA-ordered compliance implementation report. Robinhood hired an independent compliance consultant who made remediation recommendations, which Robinhood has largely implemented.
Disclaimer: The following breaking news story is still developing and the information provided is subject to change as new details emerge.
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