The online brokerage platform Robinhood will pay a nearly $70 million penalty over "widespread and significant harm suffered by customers" in connection with a series of misleading communications, system outages, and inappropriate customer approvals for complicated trades, the Financial Industry Regulatory Authority announced today. It's the largest penalty the regulator has ever ordered.
“This action sends a clear message," FINRA said in a statement. "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."
Robinhood’s trading platform for stocks and cryptocurrencies experienced a series of outages in March 2020, which prevented the firm from executing customer orders. FINRA said the disruption “resulted in individual customers losing tens of thousands of dollars.”
Temporary service blackouts remained a problem for the brokerage as recently as April of this year, though the COO of Robinhood Crypto recently told Decrypt that the company has “seen the dividends” of investments to improve its systems. When the crypto market crashed in May, Robinhood managed to stay online while Binance, Kraken, Gemini, and Coinbase all went down.
FINRA also found that Robinhood has “negligently communicated false and misleading information” since 2016, including incorrectly displaying how much cash traders had in their accounts, and misleading customers about the risks they faced when placing complicated trades.
The regulator referenced Alex Kearns, the 20-year-old trader who died by suicide last June after mistakenly thinking he was over $700,000 in debt. Kearns’ family has filed a lawsuit accusing Robinhood of wrongfully causing his death by displaying confusing information about margin trading.
FINRA has reserved $57 million of the penalty for fines, and Robinhood must pay out $12.6 million (plus interest), as restitution to the thousands of involved customers.
“Robinhood has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams,” said a spokesperson for the company. “We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all.”