Robinhood Financial LLC will pay approximately $70 million to settle claims by FINRA about systemic failures and significant harm suffered by millions of clients.
Robinhood resolution with FINRA includes $12.6 million in restitution, plus interest, to thousands of harmed customers. The largest financial penalty ever ordered by FINRA “reflects the scope of seriousness of the violation.”
“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 system 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 Financial Industry Regulatory Authority said in an announcement.
“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. “Jessica Hopper Executives Head of FINRA Department of Enforcement.
Why FINRA charged Robinhood?
According to FINRA Robinhood’s self-described mission was “demystify finance for all,” since September 2016. However, the firm has provided the wrong information about the details they provide.
Misleading information on various issues whether a client could place a trade on margin, cash in client’s account, buying power, risk of loss in certain transactions, and whether customer faced margin calls.
FINRA noted in June 2020 Robinhood client who had turned margin off took his life confusion by a note in his account. It appeared to show he had turned off margin trade and inaccurately showed a negative cash balance. Additionally, Robinhood misstatement thousands of other customers suffered more than $7 million in total losses. As part of the settlement, Robinhood will have to pay $7 million in restitution to these customers.
Between 2018 and late 2020, Robinhood experienced a “series of outage and critical system failures”. A serious outage occurred on March 2 and 3, 2020, where clients lost tens of thousands of dollars. FINRA is requiring that the firm pay more than $5 million in restitution to affected customers. Overall FINRA wants Robinhood to pay $70 million to all the affected clients.
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Robinhood neither admitted nor denied the charges, but consented to FINRA’s findings. “We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all,” said Jacqueline Ortiz Ramsay.
