Robinhood Sets Aside $26 Million to Cover SEC, FINRA Fines

Robinhood faces regulatory investigations on multiple fronts, including over its prior restrictions that banned retail investors from buying shares in red-hot GameStop and other companies.

In a filing with the Securities and Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term Commission, the no-fee app revealed that the SEC alongside FINRA are also probing its 2020 service outages, and separately, the suicide of an amateur options trader.

The investigation, which audits Robinhood’s poor communications with its customers, is at an advanced stage and the company could have to pay a fine exceeding $26 million if it agrees to settle the regulator's probe.

However, details on each investigation are scarce. And, a deal is unlikely to be announced at this stage as the two sides have not formally negotiated a proposed fine.

“RHF and RHS anticipate that any resolution, if reached, would involve charges of violations of FINRA rules, a fine, customer restitution, a censure, and a compliance consultant. We have accrued in our statement of financial condition for the year ended December 31, 2020 of $26.6 million representing the bottom of the range of our probable losses. We cannot predict, however, whether these discussions will result in a resolution of these matters,” Robinhood said.

The US regulators already confirmed they are looking into recent dramatic price run-ups in heavily shorted stocks, promoted by retail investors’ groups on Reddit’s boards.

The SEC said that its commissioners are working closely with fellow regulators, including FINRA and stock exchanges, to assess the situation and review the activities of brokers and other market participants.

The SEC did not call out Robinhood or any other trading platforms by name, but did note that it will “closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.”

Moreover, Robinhood revealed it was being sued by the family of a 20-year-old student, who committed suicide last year thinking he incurred losses of over $700,000 on his Robinhood account.

Other Lawsuits in the Pipeline

Alex’s parents blamed Robinhood for his death at a time when the app had become a popular entry point to the financial markets for first-time investors. They accused the millennial-focused stock app of wrongful death, negligent infliction of emotional distress and unfair business practices.

Furthermore, other lawsuits accuse the firm of engaging in market manipulation when it paused GameStop trading at multiple points. This was in addition to employing aggressive marketing tactics to draw inexperienced traders, including the use of “gamification methods to control clients.”

In an attempt to ease these concerns, the fintech Unicorn Unicorn Unicorns represent privately held startup companies whose value exceeds $1 billion. The term itself was coined by venture capitalist Aileen Lee back in 2013, with Unicorns since assuming the gold standard of companies.At the time of writing, approximately 465 unicorns exist, with standouts becoming ubiquitous in everyday life. This includes Ant Financial, DiDi, Airbnb, Stripe, Lyft, and Palantir Technologies, among many others.While all wildly successful, many unicorns are themselves the product Unicorns represent privately held startup companies whose value exceeds $1 billion. The term itself was coined by venture capitalist Aileen Lee back in 2013, with Unicorns since assuming the gold standard of companies.At the time of writing, approximately 465 unicorns exist, with standouts becoming ubiquitous in everyday life. This includes Ant Financial, DiDi, Airbnb, Stripe, Lyft, and Palantir Technologies, among many others.While all wildly successful, many unicorns are themselves the product Read this Term, which has been credited with helping popularize trading among millennials, announced recently multiple changes to its options trading products.

“The SEC staff, FINRA staff and staff of such state regulatory authorities are reviewing, among other things, how RHF displays cash and buying power to customers and its options trading approval processes. RHF is cooperating with the regulators’ requests,” Robinhood added.