Beautiful Virgin Islands

Monday, Jul 14, 2025

SEC charges investment app Robinhood with misleading customers

SEC charges investment app Robinhood with misleading customers

Robinhood agreed to pay a $65 million civil penalty, without admitting or denying SEC’s findings.
The Securities and Exchange Commission on Thursday charged Robinhood with deceiving customers about how the stock trading app makes money and failing to deliver the promised best execution of trades.

Robinhood agreed to pay a $65 million civil penalty, without admitting or denying SEC’s findings. The Silicon Valley startup, which has eventual plans to go public, has raised north of $1 billion in funding in 2020, lifting Robinhood’s valuation to $11.7 billion.

“Between 2015 and late 2018, Robinhood made misleading statements and omissions in customer communications, including in FAQ pages on its website, about its largest revenue source when describing how it made money – namely, payments from trading firms in exchange for Robinhood sending its customer orders to those firms for execution, also known as ‘payment for order flow,’” the SEC statement read.

“One of Robinhood’s selling points to customers was that trading was ‘commission free,’ but due in large part to its unusually high payment for order flow rates, Robinhood customers’ orders were executed at prices that were inferior to other brokers’ prices,” the statement went on to say.

The millennial favored trading app is best know for pioneering the “commission free trading.” Robinhood, and the rest of the online brokerage industry, rely on what’s known as payment for order flow as their profit engine in lieu of commissions.

Taking payments for order flow from Wall Street firms is a controversial, but legal practice done by most electronic brokers, however Robinhood sticks out because it is the company’s biggest revenue source. Robinhood made $180 million off trades in the second quarter.

The SEC order found that Robinhood provided inferior trade prices that cost customers $34.1 million, even after considering the savings from not paying a commission.

“Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm,” said Stephanie Avakian, Director of the SEC’s Enforcement Division. “Brokerage firms cannot mislead customers about order execution quality.”

Market makers, such as Citadel Securities or Virtu, pay e-brokers like Robinhood for the right to execute customer trades. The broker is then paid a small fee for the shares that are routed, which can add up to millions when customers trade as actively as they have this year.

Robinhood has experienced record growth in 2020 due to the unprecedented market volatility from the Covid-19 pandemic. Robinhood posted a record 3 million new customers in the first four months of 2020.

“The settlement relates to historical practices that do not reflect Robinhood today. We recognize the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve Robinhood as we grow to meet our customers’ needs,” Dan Gallagher, Chief Legal Officer at Robinhood told CNBC.

″We are fully transparent in our communications with customers about our current revenue streams, have significantly improved our best execution processes, and have established relationships with additional market makers to improve execution quality,” a Robinhood spokesperson told CNBC.

The SEC’s charges come after Massachusetts regulators filed a complaint on Wednesday against Robinhood, accusing the trading app of predatory marketing on inexperienced investors.

The complaint cites Robinhood’s “aggressive tactics to attract inexperienced investors, its use of gamification strategies to manipulate customers, and its failure to prevent frequent outages and disruptions on its trading platform.”
Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
South African Police Minister Suspended Amid Organised Crime Allegations
Nvidia CEO Claims Chinese Military Reluctance to Use US AI Technology
Hong Kong Advances Digital Asset Strategy to Address Economic Challenges
Australia Rules Out Pre‑commitment of Troops, Reinforces Defence Posture Amid US‑China Tensions
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
U.S. Resumes Deportations to Third Countries After Supreme Court Ruling
Excavation Begins at Site of Mass Grave for Children at Former Irish Institution
Iranian President Reportedly Injured During Israeli Strike on Secret Facility
EU Delays Retaliatory Tariffs Amid New U.S. Threats on Imports
Trump Defends Attorney General Pam Bondi Amid Epstein Memo Backlash
Renault Shares Drop as CEO Luca de Meo Announces Departure Amid Reports of Move to Kering
Senior Aides for King Charles and Prince Harry Hold Secret Peace Summit
Anti‑Semitism ‘Normalised’ in Middle‑Class Britain, Says Commission Co‑Chair
King Charles Meets David Beckham at Chelsea Flower Show
If the Department is Really About Justice: Ghislaine Maxwell Should Be Freed Now
NYC Candidate Zohran Mamdani’s ‘Antifada’ Remarks Spark National Debate on Political Language and Economic Policy
President Trump Visits Flood-Ravaged Texas, Praises Community Strength and First Responders
From Mystery to Meltdown, Crisis Within the Trump Administration: Epstein Files Ignite A Deepening Rift at the Highest Levels of Government Reveals Chaos, Leaks, and Growing MAGA Backlash
Trump Slams Putin Over War Death Toll, Teases Major Russia Announcement
Reparations argument crushed
Rainmaker CEO Says Cloud Seeding Paused Before Deadly Texas Floods
A 92-year-old woman, who felt she doesn't belong in a nursing home, escaped the death-camp by climbing a gate nearly 8 ft tall
French Journalist Acquitted in Controversial Case Involving Brigitte Macron
Elon Musk’s xAI Targets $200 Billion Valuation in New Fundraising Round
Kraft Heinz Considers Splitting Off Grocery Division Amid Strategic Review
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
EU Proposes New Tax on Large Companies to Boost Budget
Trump Imposes 35% Tariffs on Canadian Imports Amid Trade Tensions
Junior Doctors in the UK Prepare for Five-Day Strike Over Pay Disputes
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Kurdistan Workers Party Takes Symbolic Step Towards Peace in Northern Iraq
Bitcoin Reaches New Milestone of $116,000
Biden’s Doctor Pleads the Fifth to Avoid Self-Incrimination on President’s Medical Fitness
Grok Chatbot Faces International Backlash for Antisemitic Content
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
Labour Expected to Withdraw Support for Special Needs Funding Model
Leaked Audio Reveals Tory Aide Defending DEI Record
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
×