Wall Street regulators have ordered retail trading platform Robinhood to pay more than $70 million in fines for causing “extensive and significant” harm to its customers.
The Financial Industry Regulatory Authority announced on Wednesday that it will impose a fine of US$57 million on Robinhood and order it to pay customers US$12.6 million plus interest, which is the largest fine ever ordered by the regulator.
It stated that in the series of failures alleged by Finra, technical problems that prevailed on the platform during periods of high volatility caused some traders to lose tens of thousands of dollars.
According to regulators, Robinhood also allows thousands of customers to trade risk derivatives when “unsuitable” for them, and provides customers with false or misleading information about how much cash is in their accounts and their ability to conduct margin trading. And the risk of loss in derivatives trading.
Finra quote Suicide death Last year, a young Robinhood customer mistakenly believed that he had suffered a loss of $730,165 in margin trading. In fact, his account balance is $16,000. In a note found after his death, he stated that he did not believe that he had “opened” margin trading on his account.
Finra said that for more than five years, Robinhood “failed to establish and maintain” a system that complies with securities regulations.
Jessica Hopper, the head of Finra’s law enforcement department, said: “Observing these rules is not optional and cannot be sacrificed for innovation or willingness to’break things’ and fix them later.
In response to Finra’s actions, the company said: “Robinhood has invested a lot of money in improving platform stability, strengthening educational resources, and building our customer support and legal and compliance teams. We are very happy to leave this matter behind, and I look forward to continuing to pay attention to our customers and to democratize finance for everyone.”
The penalty comes when Robinhood plans to go public on the stock market to take advantage of this period of explosive growth. Since the beginning of the pandemic and the boom in “memetic stock” trading, broker-dealers have become synonymous with the rise of retail day trading. Finra’s data shows that in the past year, the number of users on its platform has more than doubled, from 13 million at the end of March 2020 to 31 million currently.
Opening a suspicious account is another issue pointed out by Finra. As of the end of 2018, Robinhood disregarded the warning of potential identity fraud and automatically opened many accounts, including more than 100 accounts, among which “the customer’s social security number is likely to belong to the deceased.”
The regulator stated that Robinhood also failed to notify Finra of the tens of thousands of customer complaints that needed to be reported.