(Bloomberg) — Robinhood Financial will pay a record $70 million penalty to settle allegations from the U.S. brokerage industry's regulator and watchdog that it misled millions of customers.
The penalty stems from lapses during a March 2020 outage and allegations that let thousands of Robinhood clients trade options that might not have been appropriate for them.
The case represents the largest financial sanction ever ordered by the Financial Industry Regulatory Authority, a decision that reflects the “scope and seriousness of the violations,” the watchdog said Wednesday in a statement. FINRA said its investigation found that Robinhood had “negligently” provided false information to its customers in certain periods dating back to 2016.
The penalty comes at a critical time for Robinhood, which plans to hold an initial public offering later this year. The brokerage firm has faced criticism from lawmakers and regulators over its ties to the meme-stock frenzy that has roiled markets this year, and over claims that its popular app hooks neophyte investors on trading with addictive gamification features.
The FINRA sanction includes a $57 million fine and a demand that Robinhood pay about $12.6 million to wronged customers. In settling the case, Robinhood neither admitted nor denied the regulator’s allegations.
“Robinhood has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams,” Robinhood representative Jacqueline Ortiz Ramsay said in a statement.
In a Wednesday blog post, Robinhood said that it has added live phone support for certain areas and more than tripled its customer support staff since March 2020, with about 2,700 people working in that area now. The company also said it had improved how it manages its technology to reduce the risk of future outages, and added more supervision for options trading. The lack of live customer support has been a frequent client complaint.
Robinhood has struggled at times to keep up with demand for its free app since the pandemic began to roil financial markets last year. The company said in a February filing that it was in talks with FINRA to resolve an inquiry about its March 2020 outages and practices involving options trading, which it said could cost at least $26.6 million. The sum it agreed to pay was more than twice that amount.
