Robinhood Faces SEC Fraud Investigation: Report

The investigation focuses on Robinhood's relationship with high-speed trading firms, and could lead to a $10 million fine.
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The popular trading app Robinhood is facing an SEC investigation over its relationships with high-speed trading firms, according to a new report.

The Securities and Exchange Commission is investigation Robinhood over its ties to high-speed trading firms, the Wall Street Journal reported on Wednesday. 

The investigation is focused on whether Robinhood properly disclosed to customers that its orders were being sold to high-speed trading firms, and whether that lack of disclosure amounts to civil fraud. 

The investigation is reportedly in an advanced stage, and if Robinhood is found liable, it may have to pay a fine as high as $10 million if it agrees to settle with the SEC, according to the WSJ. The two sides haven't formally negotiated a settlement, and a deal is unlikely to be reached this month. 

Robinhood's app offers commission-free stock trades, and has seen considerable growth in recent years and particularly during the COVID-19 pandemic. 

The company said it made $180 million in the second quarter, compared to $91 million in the first quarter. Robinhood reported 4.31 million daily active trades in June. The majority of Robinhood’s revenue comes from options trading, which is viewed as risky particularly for amateur investors. 

The app has drawn criticism at times for enabling risky trades and catering to beginner investors. 

In June, a 20-year-old student at the University of Nebraska committed suicide after misreading his account and thinking, incorrectly, that he'd run up massive losses in a Robinhood trading account. 

The growing popularity of the app has also led to recent outages. The app was down for some period of time last Monday, sparking frustration among users who sought to complete trades. 

Robinhood was last valued at $11 billion during its Series G round of fundraising in August.