This article by Cristian Bustos with my photo is in today’s Entrepreneur.
U.S. financial regulation authority (FINRA) has fined trading platform Robinhood an unprecedented $70 million for damages caused to millions of customers in recent months. This is the highest sanction agreed by the U.S. financial regulator and reflects “the extent and seriousness of the violations,” according to a statement.
Robinhood Fine Reflects Seriousness Of Violations
As informed by CNBC, Robinhood has agreed to pay a fine of $57 million and further refund $12.6 million to the hundreds of thousands of affected customers.
For Jessica Hopper, FINRA’s executive vice president and head of enforcement, “The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood’s violations.”
FINRA found that Robinhood had sent its customers false or erroneous information about how much money they had in their accounts, and whether they could place trades on margins, costing them a whopping $7 million.
The company relegated the approval of trades to algorithms with “limited” oversight by employees, so clients would place trades despite not meeting the eligibility criteria. Also, the misleading information gave consumers a false estimate of their purchase power and disguised the risk of losses faced in certain option transactions.
Between 2018 and early 2021, Robinhood did not “reasonably” monitor the technology it relied on for its brokerage services, so the system went down on several occasions, preventing clients from accessing their accounts or operating “during a time of historical volatility” in the market.
A Long-Lasting Effect
“This action sends a clear message —all FINRA member firms, regardless of their size or business model, must comply with the rules that govern the brokerage industry, rules which are designed to protect investors and the integrity of our markets,” Hopper said.
Robinhood spokeswoman Jacqueline Ortiz Ramsay states that the company has invested heavily in “improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams.”
“We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all,” she said.
Referring to Robinhood’s pledge that it is “commission-free, now and forever,” Munger said that Robinhood is “telling people they aren’t paying commissions when the commissions are simply disguised in the trading.”