By: Yuritza Arroyo
Attorney General Matthew J. Platkin and the Division of Consumer Affairs Bureau of Securities (the “Bureau”) today announced that it has joined a multi-state settlement with Robinhood Financial LLC (“Robinhood”), which will pay up to $10.2 million in penalties for operational and technical failures that harmed investors.
According to officials, the settlement stems from a North American Securities Administrators Association (“NASAA”) investigation spearheaded by state securities regulators from Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas regarding Robinhood’s operational failures with respect to the retail market.
Officials say Robinhood platform outages sparked the investigation in March 2020, a time when hundreds of thousands of investors were relying on the Robinhood app to make trades.
In addition, before March 2021, there were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols.
In some cases, these deficiencies left Robinhood users unable to process trades even as the value of certain stocks dropped.
“These Main Street investors looking to invest in their future were failed by Robinhood,” said Attorney General Platkin.
“This settlement shows when they don’t take care of their customers; we will step in to protect them.”
In the Consent Order settling the investigation, the Bureau found that Robinhood committed the following violations:
- Failure to have a reasonably designed customer identification program.
- Failure to supervise technology critical to providing customers with core broker-dealer services.
- Failure to have a reasonably designed system for dealing with customer inquiries.
- Failure to exercise due diligence before approving certain option accounts.
- Failure to report all customer complaints to the Financial Regulatory Authority (“FINRA”) and state securities regulators, as may be required.
According to authorities, Robinhood neither admits nor denies the findings set out in the Bureau’s orders.
Authorities say Robinhood will provide the settling states with access to a FINRA-ordered compliance implementation report. Robinhood retained an independent compliance consultant who made recommendations for remediation
“Robinhood benefitted from its reputation as a way for people with little experience to try their hand at investing in the stock market,” said Cari Fais, Acting Director of the Division of Consumer Affairs.
“Its customers deserved better than the operational failures that resulted in this settlement.”
Under the terms of the settlement, the Bureau assessed Robinhood a civil monetary penalty in the amount of $200,000. Robinhood has also agreed to remedial undertakings to address their ongoing customer service needs.
“Robinhood and other similar broker-dealer apps have quickly grown and introduced investing to those who do not have prior experience in the markets,” said Acting Bureau Chief Amy Kopleton.
“Broker-dealers must safeguard their customers’ interests and establish systems to meet customer service needs.”
