Robinhood to pay record $70 million settlement with regulator

A financial industry regulator Wednesday ordered Robinhood Financial to pay nearly $70 million in fines and restitution to customers harmed by regulatory lapses and inaccurate information.

Robinhood will pay $57 million in fines to the Financial Industry Regulatory Authority (FINRA), a self-regulatory agency for brokerage firms, and $12.6 million in damages to thousands of customers. It is the largest penalty ever levied by FINRA, the regulator said.

“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,” said Jessica Hopper, executive vice president and head of enforcement for FINRA.

“The fine imposed in this matter,” she continued, “reflects the scope and seriousness of Robinhood’s violations, including FINRA’s finding that Robinhood communicated false and misleading information to millions of its customers.”

FINRA alleged that since 2016, Robinhood frequently provided customers with incorrect information about the net value of their investments, the amount of risk they had taken and whether they could be required to put up more cash for their current positions.

The regulator cited the case of Alex Kearns, who died by suicide in 2020 after Robinhood incorrectly indicated he had lost nearly $750,000, among thousands of the app’s other customers who suffered losses because of wrong information. 

FINRA also alleged that Robinhood allowed thousands of customers who did not meet the company’s requirements or should not have been approved for other reasons to trade options, which are generally riskier and more complicated than stocks.

Robinhood additionally failed to adequately supervise the technology needed to process basic customer orders, FINRA alleged, leading to several outages that locked customers out of their accounts. The company also allegedly failed to report tens of thousands of customer complaints to FINRA.

In a Wednesday statement, Robinhood did not admit to or deny the FINRA allegation but stressed recent improvements to its customer service and compliance efforts.

“Robinhood 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,” the company said.