Robinhood Financial to Be Hit With Complaint by Mass. Regulators

Regulators charge that Robinhood failed to protect its customers and their assets.
Author:
Publish date:

Massachusetts securities regulators reportedly were expected to file a complaint Wednesday against the trading platform operated by Robinhood Financial LLC, for allegedly marketing aggressively to inexperienced investors and failing to implement controls to protect them.

The enforcement arm of the Massachusetts Securities Division charged that Robinhood failed to protect its customers and their assets in violation of state laws and regulations, according to The Wall Street Journal, which cited a final draft of an administrative complaint.

Robinhood exposed Massachusetts investors to "unnecessary trading risks" by "falling far short of the fiduciary standard" adopted this year that requires broker-dealers to act in their clients' best interest, according to the Journal, which reviewed the draft.

A Robinhood spokeswoman told the Journal that the company hadn't seen the complaint but will continue to work closely with all regulators.

"Robinhood has opened up financial markets for a new generation of people who were previously excluded," she said. "We are committed to operating with integrity, transparency, and in compliance with all applicable laws and regulations."

The complaint estimated that as of early December, Robinhood has nearly 500,000 customers in Massachusetts with accounts totaling over $1.6 billion.

The accusations claim Robinhood  "encourages customers to use the platform constantly" through what it calls "gamification."

The complaint alleged that, through the promise of free stocks, push notifications and its signature digital confetti, Robinhood encouraged "continuous and repeated engagement with its application." 

Robinhood allegedly allowed one customer with no investment experience to make more than 12,700 trades in just over six months.

Among other requested relief, Massachusetts regulators seek to require Robinhood to engage consultants to review its infrastructure in response to the platform outages and to enhance its policies for approving users for options trading. 

The complaint also suggests an administrative fine be placed on Robinhood, the Journal said.

Last year, Robinhood agreed to pay $1.25 million to settle claims from the Financial Industry Regulatory Authority, which charged the company didn't take steps to ensure it was getting the best prices for customer orders. 

The company agreed to settle without admitting or denying fault.