Multifaceted trading platform Robinhood will pay the $10 million fine to DFPI following a NASAA investigation.
Robinhood (NASDAQ: HOOD) has reached a $10.2 million settlement with the California Department of Financial Protection and Innovation (DFPI). The financial services firm is reportedly paying the penalty for “operational and technical failures” that hurt investors.
The Robinhood settlement follows an investigation by the North American Securities Administrators Association (NASAA). NASAA investigated complaints about company system outages and service unavailability costing users several business opportunities. During Robinhood’s investigation, the oldest international investor protection organization worked closely with securities regulators in seven states. These include California, Texas, New Jersey, Colorado, Alabama, Delaware, and South Dakota.
in a Press releaseAndrew Hartnett, president of the North American Securities Managers Association, said:
“The multi-state agreement represents states at their best: working together for the benefit of Main Street investors. Robinhood has repeatedly failed to serve its customers, but this settlement makes it clear that Robinhood must take its customer service obligations seriously and correct these deficiencies.”
Robinhood deal concludes two-year research development
Following a system outage, Robinhood’s operations came under intense scrutiny in March 2020. At the time of the “deficiency,” a large number of investors were using the platform to trade. However, the Robinhood system glitch made the services unavailable, resulting in users missing out on trades.
The regulators accused Robinhood of “negligent dissemination of inaccurate information to clients”. In addition, the company was also criticized for not establishing a proper customer identification program.
Regulators accused Robinhood of failing to oversee technology that was critical to providing basic brokerage services for clients. The exchange-traded fund and stock trading platform reportedly also did not report customer complaints to the Financial Industry Regulatory Authority.
According to the DFPI, Robinhood did not admit wrongdoing or deny the allegations against it. Instead, the government agency stated that Robinhood fully cooperated with the investigation. Additionally, DFPI found no evidence of fraudulent conduct by the Menlo Park-based business application. However, DFPI Commissioner Clotilde Hewlett noted that “Robinhood must adhere to common-sense investor and consumer protections as required by law.”
FINRA Class Action Lawsuit and Fine
Robinhood experienced substantial growth at the start of the pandemic, with several people trading from home. However, the company received a class action lawsuit after experiencing outages that affected thousands of users. In June 2021, the Financial Industry Regulatory Authority (FINRA) ordered Robinhood to pay approximately $70 million in compensation. At the time, the head of FINRA’s Compliance Department, Jessica Hopper, said:
“The fine imposed in this matter, the highest ever imposed by FINRA, reflects the scope and seriousness of Robinhood’s violations, including FINRA’s finding that Robinhood communicated false and misleading information to millions of its customers.”
According to FINRA, countless users suffered “widespread and significant damage” from the outage after seeing incorrect negative cash balances in their accounts. The casualties included a 20-year-old Robinhood user who committed suicide in June 2020 after an erroneous negative balance exceeding $730,000.
next
Tolu is a Lagos-based blockchain and cryptocurrency enthusiast. He likes to demystify the crypto stories down to the basics so that anyone anywhere can understand them without too much prior knowledge. When he’s not up to his neck in crypto-stories, Tolu likes music, loves to sing, and is an avid movie buff.
