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Regulators stated that the trading app should compensate customers such as the 20-year-old who committed suicide after an erroneous negative balance showed in his account.
Based on the findings of an investigation into the stock and cryptocurrency trading app, the US Financial Industry Regulatory Authority has fined Robinhood about $70 million.
In a Wednesday announcement, the Financial Industry Regulatory Authority, or FINRA, said it had ordered Robinhood to pay $57 million in fines to the regulatory body as well as provide roughly $12.6 million in restitution to certain customers. FINRA alleged the trading platform caused “widespread and significant harm” to thousands of users and exhibited “systemic supervisory failures” starting as early as September 2016.
“The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood’s violations, including FINRA’s finding that Robinhood communicated false and misleading information to millions of its customers,” said the head of FINRA’s department of enforcement Jessica Hopper.
The false information to which FINRA referred includes allegations Robinhood misrepresented margin trades, users’ cash holdings in the app accounts, the risk of loss in options transactions, how much buying power users had, and information regarding margin calls. According to the regulatory body, “Robinhood neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.”
Customers who reported seeing incorrect negative cash balances in their accounts were told to pay $7 million in reparations, according to regulators. Alexander Kearns, a 20-year-old Robinhood customer who committed suicide in June 2020 after an erroneous negative balance of more than $730,000 appeared in his account, was mentioned in the corpse. Furthermore, FINRA ordered the trading platform to pay more than $5 million to consumers who were harmed by Robinhood outages between 2018 and 2020, saying that many users lost up to tens of thousands of dollars in transactions that the site was unable to execute during high market volatility.
The penalties paid directly to FINRA appear to be based on Robinhood’s corporate regulations and apparent inability to provide clients with a comprehensive view of market data. According to the regulatory agency, the trading platform neglected to disclose thousands of customer complaints to FINRA between January 2018 and December 2020, resulting in all of the aforementioned problems. Furthermore, Robinhood’s method for approving consumers for option trading was based on algorithms rather than “firm principals.” According to FINRA, this technique resulted in the acceptance of thousands of individuals who did not fulfil the company’s eligibility standards or whose accounts should have been reported differently.
The findings of the FINRA probe come as Robinhood prepares to launch an initial public offering, or IPO. However, the corporation is presently under investigation by the US Securities and Exchange Commission, which has allegedly delayed the company’s IPO. Robinhood had intended to conduct its initial public offering (IPO) this month, but has allegedly postponed the sale until July.