Robinhood online trading platform consented to pay $29.75 million to settle investigations by Financial Industry Regulatory Authority following its non-compliance. This followed allegations regarding customer account management, trade surveillance, and security controls by Robinhood.
The penalty also includes a $26 million fine and $3.75 million in restitution to customers harmed. Robinhood did not address a series of red flags of potential misconduct, FINRA said. These included Anti-Money Laundering rule breaches, inadequate security controls, and inadequate monitoring of customer transactions.
In the meme stock craze phase from March 2020 to January 2021, for GameStop and AMC, Robinhood faced extreme delays in executing trades. It halted trading in some stocks during the period, which was universally criticized. FINRA determined in its investigation that Robinhood failed to properly monitor its clearing system, detect suspicious money transfers, and detect hacked accounts.
Among the main issues was Robinhood not checking the identities of clients before opening many accounts. Additionally, they were charged with re-posting dubious material by social media influencers without any supervision. The posts contained some overstatements that misled investors.
The $3.75 million customer restitution relates to Robinhood’s “collaring” practice, a method of converting market orders to limit orders, in which customers can receive incomplete or misleading information.
This action comes after Robinhood paid $45 million in January following independent probes of violations of the securities laws. In spite of all the regulatory issues, Robinhood posted historic revenues in recent times, including $916 million net income and over $1 billion revenues in the fourth quarter of 2024. To everyone’s surprise, its crypto trading volume grew 450% in the same quarter last year with revenues of $358 million.
While Robinhood’s bottom line remains healthy, fines such as these evidence ongoing concerns about its compliance procedures and the need for stricter regulation to protect investors.
