Robinhood to Pay $26 Million to Settle Finra Allegations

(Bloomberg) — Two units of Robinhood Markets Inc. agreed to pay $26 million to settle Financial Industry Regulatory Authority allegations that it failed to respond to red flags about potential misconduct and didn’t verify the identities of thousands of customers.

The fine from the broker-dealer industry regulator comes on the heels of a separate $45 million settlement by Robinhood Securities and Robinhood Financial in January with the US Securities and Exchange Commission, which accused the retail trading firm of failing to preserve records and not reporting suspicious activity on time, among other problems. 

“Today’s action reminds Finra members that compliance with core regulatory obligations remains critical to safeguarding and serving all investors,” Bill St. Louis, Finra’s head of enforcement, said in a statement.  

Robinhood, which made its name bringing commission-free trades to retail investors via a smartphone app, didn’t admit to or deny Finra’s claims. 

Among other allegations, the regulator said Robinhood failed to supervise social media influencers paid to tout the firm and some of the social media communications were misleading to investors.

The firm also fell short on compliance with reporting obligations for data files called blue sheets, which include detailed trading information that regulators request to investigate suspicious trading.

Finra said customers received unclear disclosures about the terms and conditions around a mechanism the firm used to protect customers from volatile stock prices. Called collaring, customers were prevented from buying or selling stocks whose prices moved up or down by more than 5% between placing and executing a trade. When customers re-entered their orders, they sometimes got an inferior price, Finra said. 

The Finra actions against the company also include a demand that Robinhood Financial pay $3.75 million in restitution to the trading platform’s customers. 

“We are pleased to resolve these historical matters, many of which date as far back as 2014, and which Robinhood Securities and Robinhood Financial have since remediated,” Erica Crosland, the firm’s head of regulatory enforcement and investigations, said in a statement. 

Robinhood has frequently found itself in the headlines even before the company went public. In December 2020, the firm agreed to pay the SEC $65 million to settle allegations that it failed to properly inform clients it sold their stock orders to high-frequency traders and other firms. 

Finra imposed a nearly $70 million fine on Robinhood in 2021, alleging the firm misled its customers about margin trading and lapsed in its oversight of technology and approvals for options traders.

During the pandemic, customers flocked to the firm’s app, helping fuel a meme-stock craze that roiled the market and made shares in GameStop Corp. and AMC Entertainment Holdings Inc. surge. 

–With assistance from Isabella Farr.

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