Robinhood Slapped With $70 Million Record Penalty by FINRA

Divya  |  Jul 1, 2021

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.

FINRA Penalty Covers Technical Failures at Robinhood

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.

FINRA issued a statement explaining the magnitude of the situation and its grave impact on Robinhood’s users. The organization stated, “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.”

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.

Robinhood Expands Workforce to Ensure Compliance in Future

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.

The company has also expanded its workforce to 2,700 members who will support customer operations. Jacqueline Ortiz Ramsay, Robinhood’s head of public policy communications said, "Robinhood has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams." Furthermore, she added, "We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all."

 

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