The Financial Industry Regulatory Authority(FINRA) has slapped Robinhood with roughly $70 million in penalties for "systemic supervisory failures" that hurt investors by giving them misleading information. This is the largest-ever penalty imposed by Wall Street’s self-regulator against any firm.
The penalty levied by FINRA covers the system-wide outages experienced by Robinhood in March 2020 as well as the options trading procedures and distribution of misleading information on margin trading. The self-regulatory organization that oversees brokerage firms and exchange markets said it ordered Robinhood to pay $57 million in fines and $12.6 million in restitution to clients.
The penalty comes as Robinhood gears up to become a publicly traded firm this year. The brokerage platform witnessed systemic outages for several days in early March 2020, when the pandemic induced the fastest bear market on record leading to a trading frenzy. These outages left many clients without options to trade in equities or cryptocurrencies.
Robinhood is also facing a lawsuit filed by the family of a 20-year-old trader who committed suicide after believing he had racked up losses worth $730,000 on the app.
For its part, Robinhood has neither admitted nor denied the charges leveled by FINRA. But the California-based firm had anticipated some of these penalties, for which it set aside $26.6 million, according to an audit filing with the SEC.