Multifaceted trading platform Robinhood will pay the $10 million fine to DFPI following an investigation by NASAA.
Robinhood (NASDAQ: HOOD) has reached a $10.2 million settlement with the California Department of Financial Protection and Innovation (DFPI). According to reports, the financial services company is paying the penalty for “operational and technical failures” that harmed investors.
The Robinhood settlement follows a probe by the North American Securities Administrators Association (NASAA). The NASAA looked into complaints regarding the company’s system outages and service unavailability that cost users several trading opportunities. During the Robinhood investigation, the oldest international investor protection organization worked closely with securities regulators from seven states. These include California, Texas, New Jersey, Colorado, Alabama, Delaware, and South Dakota.
In a press release, Andrew Hartnett, President of the North American Securities Administrators Association, said:
“The multistate agreement represents states at their best – working together for the benefit of Main Street investors. Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies.”
Robinhood Settlement Concludes Two-Year Investigative Development
After 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 make trades. However, the failure of the Robinhood system made services unavailable, causing users to miss out on trades.
Regulators accused Robinhood of “negligent dissemination of inaccurate information to customers”. In addition, the company also came under fire for failing to establish an adequate customer identification program.
Regulators accused Robinhood of failing to supervise technology that was pivotal to providing core customer broker-dealer services. The stock-trading and crypto exchange-traded fund platform also reportedly failed to report customer grievances 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. Furthermore, the DFPI found no evidence of fraudulent conduct by the Menlo Park-based trading app. Nonetheless, DFPI Commissioner Clothilde Hewlett pointed out that “Robinhood must comply with common-sense protections for investors and consumers as required by law.”
Class-Action Lawsuit & FINRA Fine
Robinhood experienced substantial growth at the beginning of the pandemic, with several people conducting trades from home. However, the company was served a class-action suit 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 Department of Enforcement, Jessica Hopper, said:
“The fine imposed in this matter, the highest ever levied 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 harm” from the outage after seeing incorrect negative cash balances in their accounts. Casualties included a 20-year-old Robinhood user who committed suicide in June 2020 following an erroneous negative balance that exceeded $730,000.
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