The California Department of Financial Protection and Innovation said the company behind cryptocurrency and stock trading platform Robinhood will likely pay more than $10 million in penalties "for operational and technical failures that harmed core investors."
In an April 6 announcement, the DFPI saying The settlement, for up to $10.2 million, was the result of an investigation by the North American Securities Administrators Association in conjunction with securities regulators from Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas. The platform suffered a series of system outages in March 2020, resulting in users missing out on trades while many of Robinhood's services were unavailable.
"Robinhood has repeatedly failed to serve its customers, but this settlement makes it clear that Robinhood must take its customer service obligations seriously and correct these deficiencies," NASAA President Andrew Hartnett said.
.@RobinhoodApp faces a multi-state settlement over operational and technical glitches affecting investors, following a @NASAA investigation by 7 states. Robinhood has implemented the recommendations of an independent consultant. More information: https://t.co/atk86Z0Xmk #invest #cryptonews pic.twitter.com/B5QWU0m3yq
โ CA Department of Innovation and Financial Protection (@CaliforniaDFPI) April 6, 2023
Robinhood experienced significant growth at the start of the COVID-19 pandemic when many people started working from home and doing online transactions through the app. However, the platform outages caused some affected users to file a class action lawsuit against Robinhood. The US Financial Industry Regulatory Authority, or FINRA, also sanctioned the company for approximately $70 million for causing "widespread and significant damage" to thousands of users.
โThere were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the company's monitoring and reporting tools, and insufficient escalation and customer service protocols that, in some cases, left Robinhood users unable to process trades even when the value of certain stocks were falling.โ
The DFPI order accused Robinhood of "negligent dissemination of inaccurate information to clients" regarding margin trading and risks with multi-leg option spreads, as well as failures related to services available to clients and transparency. with FINRA and state regulators. As part of the settlement, Robinhood "neither admits nor denies" the regulators' findings, which included no evidence of "willful or fraudulent conduct."
Related: US Department of Justice Announces Seizure of 55 Million Robinhood Shares
The New York Department of Financial Services, which was not part of the NASAA investigation, announced a fine of 30 million dollars in Robinhood's cryptocurrency trading arm in August 2022 for alleged violations related to anti-money laundering, cybersecurity and consumer protection laws between January and September 2019. The US Securities and Exchange Commission. also issued an investigative subpoena against the company in December 2022 for its cryptolists and custodial services.
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