Robinhood Financial LLC was fined for nearly $70 million by the Financial Industry Regulatory Authority (FINRA), a private self-regulatory organization overseen by the Securities and Exchange Commission (SEC). This fine is the “highest ever levied” by FINRA, stemming from an investigation after customers were locked out of their stock trading accounts “while stocks were surging” in March 2020.
Robinhood’s goal is to “give everyone – not just the wealthy – access to financial markets,” according to their website. However, FINRA concluded that they “negligently communicated false and misleading information to its customers” including “critical” issues such as their account’s balance, trading on margin, their buying power or “negative buying power”, risks and margin calls. FINRA attributes these miscommunications with nearly $7 million in consumer losses, which Robinhood is instructed to pay for in restitution. Robinhood also “fails” to have a “reasonably designed customer identification program” and to “display complete market data information.”
Continuing, FINRA’s press statement detailed Robinhood’s purported mishandling of options trading. Robinhood used “option account approval bots” to approve customers for options trading, often based on “inconsistent or illogical information,” which led to thousands of customers being approved despite it not being “appropriate” for them. Furthermore, the investigation found that Robinhood “failed to reasonably supervise the technology it relied upon to provide core broker-dealer services,” which is the main reason for the March 2-3 , 2020 outage that was at the center of FINRA’s initial investigation. This outage resulted in customers losing “tens of thousands of dollars” and FINRA requires that Robinhood pay more than $5 million in restitution.
FINRA said they wanted to send a message that all 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.” As a result, they imposed a nearly $70 million fine, the largest in FINRA’s history, to reinforce that Robinhood, and all other firms like it, must follow the rules to protect their investors and “preserve the integrity” of America’s financial markets.
In addition to the fine, Robinhood faced multiple waves of litigation after various incidents described in the FINRA release.