Robinhood, the online brokerage platform, will have to pay close to $70 million penalty over “widespread and significant harm suffered by customers” in connection with a series of misleading communications, system outages, and inappropriate customer approvals for complicated trades, announced the Financial Industry Regulatory Authority.
FINRA statement read:
“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.”
In March 2020, Robinhood’s trading platform for stocks and cryptocurrencies experienced a series of outages, which prevented the firm from executing customer orders. According to FINRA the disruption caused individual customers losing tens of thousands of dollars.
Temporary service cuts remained an on-going issue for the brokerage as recently as April of this year. Several traders complained on Twitter not having access to their account, or not being able to sell their assets. When the crypto market crashed in May, Robinhood managed to stay online while Binance, Kraken, Gemini, and Coinbase all went down.
According to FINRA, Robinhood has also “negligently communicated false and misleading information” since 2016, including incorrectly displaying how much cash traders had in their accounts, and misleading customers about the risks they faced when placing complicated trades.
The regulator referenced Alex Kearns, the 20-year-old trader who died by suicide last June after mistakenly thinking he was over $700,000 in debt. Kearns’ family has filed a lawsuit accusing Robinhood of wrongfully causing his death by displaying confusing information about margin trading.
The regulator has reserved $57 million of the penalty for fines, and Robinhood must pay out $12.6 million (plus interest), as restitution to the thousands of involved customers.
Robinhood spokesperson commented:
“Robinhood has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams.
We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all.”
Source: FINRA: Robinhood to Pay $70M Fine Over 'Significant Harm' to Customers – Fintechs.fi