FINRA asks Robinhood to pay $ 70 million in some cases due to the “significant damage” caused by the platform

The U.S. Financial Commission fined Robinhood around $ 70 million based on the results of an investigation into the cryptocurrency and stock trading app.

In an announcement on Wednesday, the Financial Industry Regulatory Authority (FINRA) said it had ordered Robinhood to pay $ 57 million in fines to the regulator and to pay approximately $ 12.6 million in compensation for certain customers. FINRA accused the trading platform of causing “significant and widespread damage” to thousands of users and of having “systemic supervision” since the beginning of September 2016.

“The fine imposed on this matter, the highest FINRA imposed, reflects the scope and gravity of Robinhood’s violations, including FINRA’s finding that Robinhood has disclosed false information and misled millions of its customers,” said Jessica Funnel, director of FINRA enforcement.

The misinformation covered by FINRA included allegations that Robinhood misrepresented margin trades, the amount of user funds in the app account, the risk of loss in options trades, the purchasing power of users, and information on margin calls. According to the regulator, “Robinhood neither admits nor denies the allegations, but agrees with FINRA’s findings.”

Regulators said the company was responsible for providing $ 7 million in compensation to customers who reported false negative cash balances on their accounts. The body relates to Alexander Kearns, a 20-year-old Robinhood user who committed suicide in June 2020 after an accidental negative balance of more than $ 730,000 was exposed on his account. In addition, FINRA ordered the trading platform to pay more than $ 5 million to users affected by the Robinhood outage between 2018 and 2020, claiming that many users lost tens of thousands of dollars in trades that the Platform during periods of significant market volatility. .

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The fines paid directly to FINRA appear to be based on Robinhood’s corporate policies and clearly failed to provide clients with a clear picture of the market data. The regulator said that between January 2018 and December 2020, the trading platform failed to report thousands of user complaints to FINRA after all of the above issues. In addition, Robinhood’s process of approving clients to trade options is based on algorithms rather than “company policy”. According to FINRA, this method has resulted in the approval of thousands of users who did not meet the company’s eligibility criteria or whose accounts should have been flagged.

The results of the FINRA investigation come when Robinhood is planning an initial public offering or initial public offering. However, the company is currently subject to review by the US Securities and Exchange Commission, which is said to have delayed the IPO. Robinhood originally planned to go public this month but postponed the offering until July.