Robinhood, the popular online brokerage platform, has reached a settlement of $10.2 million with investors affected by its operational failures. The Division of Banking, Insurance and Financial Regulation, led by Lt. Gov. Tregenza A. Roach Esq., announced that the U.S. Virgin Islands will receive $200,000 as part of this multi-state settlement. The penalties are related to the harm suffered by individual consumers, small local businesses, and small independent investment firms, commonly referred to as main street investors.
The investigation into Robinhood’s operational failures was conducted by state securities regulators from Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas, under the coordination of the North American Securities Administrators Association (NASAA). It was triggered by platform outages experienced by Robinhood in March 2020 when hundreds of thousands of investors were relying on the app to make trades.
The investigation revealed several deficiencies within Robinhood’s operations. Prior to March 2021, the firm had inadequacies in its review and approval process for options and margin accounts. It also had weaknesses in monitoring and reporting tools, along with insufficient customer service and escalation protocols. These failures often left Robinhood users unable to process trades, particularly during times when the value of certain stocks was dropping.
NASAA President Andrew Hartnett emphasized the significance of the multistate agreement, stating that it represents states working together for the benefit of main street investors. He also highlighted that the settlement sends a clear message to Robinhood that it must fulfill its customer care obligations and rectify these deficiencies.
The settlement order outlines the violations committed by Robinhood. However, the firm neither admits nor denies these findings. As part of the settlement, Robinhood will provide settling states with access to a compliance implementation report ordered by the Financial Industry Regulatory Authority (FINRA). Robinhood has also engaged an independent compliance consultant, who made recommendations for remediation. The firm has generally implemented these recommendations.
One year after the settlement date, Robinhood will attest to Alabama, the lead state in the settlement, that it has achieved full compliance with the independent compliance consultant’s recommendations or has adopted measures that are more effective in addressing them.
Lt. Gov. Roach clarified that there is no evidence to suggest willful or fraudulent conduct by Robinhood during the investigation. He commended the ongoing efforts by state securities regulators to protect investors and ensure they are treated fairly by financial services firms.
For further information or inquiries, individuals can contact the Office of the Lieutenant Governor Division of Banking, Insurance and Financial Regulation at 774-2991 ext. 4512.
In conclusion, the settlement between Robinhood and investors affected by its operational failures highlights the importance of fulfilling customer care obligations and addressing deficiencies in the financial services industry. With this resolution, the participating states aim to safeguard the interests of main street investors and emphasize the importance of regulatory compliance.
