Lt. Gov. Tregenza A. Roach Esq. informs the public that the Division of Banking, Insurance and Financial Regulation has joined a multi-state settlement with Robinhood Financial LLC, which will pay up to $10.2 million in penalties for operational and technical failures that harmed main street investors doing business with the company. The U.S. Virgin Islands will receive $200,000 as a result of the settlement.
“Main street investors,” as referred to in this release, are individual consumers, investors, small local businesses and small independent investment firms. These investors are also described in the industry as retail customers or small-scale investors.
The settlement stems from an investigation spearheaded by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas coordinated through the North American Securities Administrators Association (NASAA) regarding Robinhood’s operational failures with respect to the retail market.
The investigation was sparked by Robinhood platform outages in March 2020, a time when hundreds of thousands of investors were relying on the Robinhood app to make trades. In addition, prior to March 2021, there were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping.
“Today’s multistate agreement represents states at their best – working together for the benefit of main street investors. Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies,” said NASAA President Andrew Hartnett.
The order sets out the following violations:
- Negligent dissemination of inaccurate information to customers, including regarding margin and risk associated with multi-leg option spreads.
- Failure to have a reasonably designed customer identification program.
- Failure to supervise technology critical to providing customers with core broker-dealer services.
- Failure to have a reasonably designed system for dealing with customer inquiries.
- Failure to exercise due diligence before approving certain option accounts.
- Failure to report all customer complaints to FINRA and state securities regulators, as may be required.
Robinhood neither admits nor denies the findings as set out in the states’ orders. Robinhood will provide access to a FINRA-ordered compliance implementation report to settling states. Robinhood retained an independent compliance consultant who made recommendations for remediation, which Robinhood has generally implemented.
One year after the settlement date, Robinhood will attest to the lead state, Alabama, that it is in full compliance with the FINRA-ordered independent compliance consultant’s recommendations or has otherwise instituted measures that are more effective at addressing the recommendations.
“This agreement reflects the ongoing efforts by state securities regulators to protect investors and make sure that they are treated fairly by financial services firms. We have found no evidence of willful or fraudulent conduct by Robinhood which has fully cooperated with the investigation,” said Lt. Gov. Roach.
For additional information or if there are any questions, contact the Office of the Lieutenant Governor Division of Banking, Insurance and Financial Regulation at 774-2991 ext. 4512.
