- FINRA said it fined Robinhood $57 million and ordered the stock trading app to pay nearly $13 million in restitution to thousands of clients.
- "Robinhood has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams," Robinhood said in response to the fine.
Robinhood will pay roughly $70 million in penalties for its systemwide outages and misleading communication and trading practices, the Financial Industry Regulatory Authority said Wednesday.
The settlement regards the technical failures Robinhood experienced in March of 2020, Robinhood's lack of due diligence before approving customers to place options trades and purveying misleading information to customers about aspects like trading on margin. The stock market was diving that month in especially wild trading amid the outbreak of the Covid-19 pandemic.
FINRA — a self-regulatory organization that oversees brokerage firms and their registered representatives — said it fined Robinhood $57 million and ordered the stock trading app to pay nearly $13 million in restitution to thousands of clients.
"FINRA considered the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the firm, millions of customers affected by the firm's systems outages in March 2020, and thousands of customers the firm approved to trade options even when it was not appropriate for the customers to do so," the organization said in a statement.
Robinhood — expected to go public sometime this year — suffered multiple days of outages beginning in early March of 2020, leaving clients unable to trade equities, options or cryptocurrency. The platform remained offline during some of the highest volume trading days amid the fastest bear market in history.
The popular online brokerage also faced criticism over the death of a 20-year old trader who killed himself after believing he racked up huge losses on Robinhood. The suicide was mentioned in the FINRA press release.
Robinhood neither admitted or denied the charges.
"Robinhood has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams," Robinhood head of public policy communications Jacqueline Ortiz Ramsay said in response to the fine. "We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all."
Robinhood said it now has approximately 2,700 customer support staff, the brokerage said in a blog post. That is more than triple the staff it had during March of 2020.
The Menlo Park, California-based company forecasted this fine was coming and set aside $26.6 million for settlements, according to an annual audit filing with the SEC; however, the fine is more than double the amount reserved.
"The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood's violations, including FINRA's finding that Robinhood communicated false and misleading information to millions of its customers," said Jessica Hopper, executive vice president and head of FINRA's Department of Enforcement.
Finra fined Robinhood $1.25 million in 2019 for best execution violations.
Robinhood is expected to go public in the coming months with a valuation north of $30 billion.
— with reporting from CNBC's Kate Rooney.
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