Publish date:

Robinhood Receives Record $70 Million Finra Fine

Robinhood was ordered to pay nearly $13 million in restitution to thousands of customers as part of the judgment against the company.
Author:

Stock trading app Robinhood was ordered to pay about $70 million in penalties for systemwide outages and misleading communication and trading practices by Finra Wednesday. 

The penalties stem from the technical failures Robinhood experienced in March 2020, the lack of due diligence before approving customers options trades and purveying misleading info to customers about things like margin trading. 

"This action sends a clear message—all Finra member firms, regardless of their size or business model, must comply with the rules that govern the brokerage industry, rules which are designed to protect investors and the integrity of our markets," said Jessica Hopper, the Financial Industry Regulatory Authority's executive VP.

Finra fined Robinhood $57 million while ordering the company to pay nearly $13 million in restitution to thousands of clients. The sanctions represent the largest financial penalty the regulatory agency has ever ordered.

The size of the penalty "reflect the scope and seriousness" of the Robinhood violations for which Finra found it guilty.

This is not the first time Finra has fined Robinhood for violations. In December 2019, the regulatory authority fined it $1.25 million for best execution violations related to customers' equity orders and related supervisory failures from October 2016 to November 2017. 

TheStreet Recommends

Finra's latest investigation found that the Menlo Park, Calif., company has "negligently communicated" false or misleading info to customers despite its self-described mission to "demystify finance for all."

Why Warren Buffet Has a Problem With Robinhood

The agency noted the case of the young man who committed suicide in June 2020 after expressing confusion about a six-figure negative balance on his account that was inaccurate. 

The firm estimates that thousands of other customers suffered more than $7 million in total losses due to misinformation.

Robinhood was also punished for failing to monitor the approval process for allowing customers to place options trades, instead relying on algorithms to approve customers for trading options, "with only limited oversight by firm principals."

Robinhood is expected to go public sometime this year.