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Robinhood fined $70 million in record settlement over outages and misleading customers

Robinhood fined $70 million in record settlement over outages and misleading customers


Robinhood fined $70 million in record settlement over outages and misleading customers

GameStop-Robinhood ‘Wall Street bets’ frenzy explainedUSA Today’s personal finance and markets reporter Jessica Menton breaks down how hedge fund day traders are being wrecked by Reddit users.USA TODAYRobinhood Financial has been ordered to pay nearly $70 million to resolve “systemic supervisory failures” that resulted in “significant harm” to millions of customers after the brokerage misled them, exposed them to risky trading tools and failed to supervise its technology, a failing that led to trading outages, an industry regulator said Wednesday.The online brokerage will pay a $57 million penalty and nearly $13 million in restitution to thousands of harmed clients. It was the largest penalty ever issued by the Financial Industry Regulatory Authority, according to the agency. The organization, which is overseen by the Securities and Exchange Commission, regulates brokerage firms.Robinhood misled consumers and exposed them to excessively risky trading tools, and also failed consumers when its services suffered multiple outages, the regulator said. The firm approved thousands of customers for options trading, but those customers did not satisfy the firm’s eligibility criteria, FINRA added. Robinhood neither admitted nor denied the allegations.Robinhood faces heat: Critics say brokerage is more aligned with the wealthy than average investorsMeme stocks: Like GameStop, AMC stock is now riding the Reddit wave: What is a meme stock and is it right for your market portfolio?“FINRA considered the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the firm, millions of customers affected by the firm’s systems outages in March 2020, and thousands of customers the firm approved to trade options even when it was not appropriate for the customers to do so,” FINRA said in a statement.In the beginning of the pandemic, Robinhood suffered multiple days of outages in March 2020 that left clients unable to trade stocks, options or cryptocurrencies when financial markets suffered a swift decline.The settlement, however, is not related to the meme-stock frenzy from earlier this year when Robinhood temporarily restricted customers from buying shares of several companies, including high-flying stocks like GameStop.Robinhood also came under scrutiny over the death of Alex Kearns, a 20-year-old customer who killed himself after believing he lost a significant amount of money on the trading platform. FINRA said it found that the firm “negligently communicated false and misleading information to its customers” about how much cash was in customer accounts and the risks of loss.”Robinhood also displayed to this individual (and certain other customers) inaccurate negative cash balances,” FINRA said, adding that as part of the settlement, the firm is required to pay more than $7 million in restitution to these customers.Critics say the simple and intuitive trading app that Robinhood created steers customers into risky investments that make the company and its trading partners the most money.The app itself makes it extraordinarily easy for investors to buy and sell stocks. Within minutes, users can be online and trading up to $1,000. Robinhood’s website says that it “has always sought to put you – our customers– first.”Robinhood, which has 31 million customers, had 18 million funded accounts, according to a settlement document made public Wednesday.Robinhood is expected to go public in the coming months with a valuation that tops $30 billion.

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