The online trading service Robinhood has consented to disburse $29.75 million to resolve multiple investigations from the Financial Industry Regulatory Authority (FINRA) concerning the company’s oversight and compliance measures.
The settlement amount consisted of a $26 million civil penalty and $3.75 million in restitution to clients, FINRA stated on March 7. Robinhood neglected to “address warning signals of possible misconduct,” according to FINRA, resulting in violations related to Anti-Money Laundering and supervisory and disclosure standards.
FINRA determined that Robinhood Financial failed to adequately oversee its clearing system despite evident processing delays caused by heightened demand from March 2020 to January 2021, which coincides with the period when Robinhood restricted trading in popular meme stocks like GameStop (GME) and AMC Entertainment Holdings (AMC).
According to FINRA, Robinhood Financial and Robinhood Securities also failed to recognize, examine, or report manipulative trading actions, questionable financial transactions, and cases where customer accounts were compromised by external hackers.
Additionally, FINRA found that Robinhood Financial had opened “thousands of accounts” without properly verifying the identity of the customers, it noted.
Consequently, Robinhood did not establish or execute sufficient Anti-Money Laundering protocols, the financial oversight authority remarked.
Furthermore, Robinhood neglected to “adequately supervise and retain” communications on social media by endorsing posts from compensated social media promoters, FINRA added.
“Some of these communications contained statements that were misleading or not directly fair and balanced, thus deceiving investors.”
Excerpt from FINRA’s examination of Robinhood. Source: FINRA
The $3.75 million in restitution arose from Robinhood Financial giving clients inaccurate or incomplete disclosures via “collaring” market orders by transforming them into limit orders.
Both Robinhood Financial and Robinhood Securities accepted the finality of FINRA’s conclusions without admitting or contesting the allegations.
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This settlement comes only two months after two Robinhood entities achieved a $45 million settlement with the US securities regulator on January 13 following an investigation that alleged the company had breached more than 10 securities regulations.
Robinhood Financial and Robinhood Securities “acknowledged certain findings” in that inquiry, which alleged they did not maintain and preserve electronic communications from customers during 2020 and 2021, among other infractions.
In addition, Robinhood announced a record-breaking $916 million net revenue and over $1 billion in total revenue for the fourth quarter of 2024.
Crypto revenue constituted $358 million of Robinhood’s $672 million revenue from transactions — representing a 200% increase year-on-year — while crypto trading volumes surged 450% year-on-year to reach $71 billion.
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