The US Securities and Exchange Commission (SEC) announced on Monday that it is going to distribute another $6.55 million to Robinhood investors who suffered losses due to the platform's non-disclosure practices.
This will be the second distribution of funds by the regulator from the $65 million it collected from Robinhood as a penalty in late 2020.
The regulator has necessary information from an additional 5,783 investors who are eligible for receiving compensation.
This will be the second distribution of funds by the regulator from the $65 million that it collected from Robinhood as a penalty in late 2020. Earlier, the market supervisor distributed almost $25.7 million.
The SEC will transfer precisely $6,549,141.13 in the latest distribution to Robinhood victims, and it will move the proceeds from the so-called Fair Fund to the escrow account maintained with The Huntington National Bank. Then, the fund administrator will be responsible for distributing the monies to the eligible victims.
A Controversial Business Model
Robinhood made its name quickly in the trading market by offering commission-free services to retail investors. But, the platform used the controversial ‘payment for order flow’ method and made money for routing orders to the market markers.
Though the model was legal on the surface, Robinhood failed to provide the best execution rates to its clients and thus violated the US securities market rule. The platform did not even disclose its business model to the investors.
“Robinhood did not begin comparing its execution quality to that of its competitors until October 2018, and did not take appropriate steps during the entire period to assess whether its high payment for order flow rates adversely affected customer execution prices,” an Earlier SEC order stated.
After receiving the $65 million penalties from the trading platform , the SEC started to compensate the victims based on a distribution plan published in mid-2020. The SEC has stored the collected fine from Robinhood in the Fair Fund.
