The American private Financial Industry Regulatory Authority (FINRA), overseen by the U.S. SEC, has ordered Robinhood in a News Release to pay a record-breaking financial penalty for “significant damage” to clients.
The agency asked Robinhood to pay approximately $70 million to customers for false or misleading information’s.
The statement also refers to a tragic incident in which one user committed suicide because his account inaccurately showed negative cash balances.
Robin Hood has been criticized on several levels since the GameStop incident earlier this year. Users accused the firm of failing to fulfill its mission of democratizing finance for everyone.
Head of FINRA’s Department of Enforcement, Jessica Hopper 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. Compliance with these rules is not optional and cannot be sacrificed for the sake of innovation or a willingness to ‘break things’ and fix them later, The fine imposed in this matter, the highest ever levied by FINRA, 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.”
The FINRA has ordered Robinhood to pay $70 million for various reasons. Finra.org Writes:
“First, FINRA found in its investigation that, despite Robinhood’s self-described mission to “de-mystify finance for all,” during certain periods since September 2016, the firm has negligently communicated false and misleading information to its customers.
Second, FINRA found that since Robinhood began offering options trading to customers in December 2017, the firm has failed to exercise due diligence before approving customers to place options trades.
Third, FINRA found that, from January 2018 to February 2021, Robinhood failed to reasonably supervise the technology that it relied upon to provide core broker-dealer services, such as accepting and executing customer orders. Between 2018 and late 2020, Robinhood experienced a series of outages and critical systems failures. The most serious outage occurred on March 2 and 3, 2020, when Robinhood’s website and mobile applications shut down, preventing Robinhood’s customers from accessing their accounts during a time of historic market volatility.
Additionally, between January 2018 and December 2020, Robinhood failed to report to FINRA tens of thousands of written customer complaints that it was required to report. Robinhood’s reporting failures included complaints that Robinhood provided customers with false and misleading information, and that customers suffered losses as a result of the firm’s outages and systems failures.”