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Robinhood Financial settles to pay $70m, largest financial penalty by FINRA

Robinhood Financial will be paying a total of $70 million penalties as ordered by FINRA, a non-governmental organization in the brokerage industry. The penalty includes a $57 million fine and a $12.6 million fine to all the customers Robinhood violated regulations. Thousands of customers were given wrong or misleading information, which made some of them take riskier trades.

Robinhood to pay penalty as ordered by FINRA

Image credits- UT News

Furthermore, Robinhood didn’t deny the charges nor admitted to violations. CNBC initially reported the news and was a shock to the traders who trusted and relied on the information. Finally, FINRA reflected on Robinhood’s violations seriously and made them pay the largest financial penalty ever ordered by FINRA.

Robinhood was already known for making its new or novice customers opt for risky trades. However, with the emergence of crypto trading and other kinds of easy ways to invest, more people seek guidance or information with clarity. The Robinhood brokerage company precisely took this as an opportunity. But, unfortunately, unlike giving a true information about their promise, Robinhood Financial gave wrong information or misled their customers.

How did the violation happen?

FINRA alleging Robinhood wasn’t easy. The non-profit organization explained certain examples. One such interesting example is Robinhood selecting those customers who have illogical information or have inconsistency. The brokerage company has been using a bot and targetting such customers to give misleading information to select such people. While the argument that the bots were designed such a way to provide their services to educate them. FINRA pointed out those customers who choose through such bots weren’t benefiting from the information in many cases. There have been thousands of complaints from 2018 to 2020. But Robinhood Financial failed to address such issues.

Often customers are not allowed to file a lawsuit against the brokerage firm. The terms and conditions state that they settle their case through arbitration rather than a  civil court case. In February, Robinhood was alleged to “purposefully and knowingly manipulate the market for the benefit of people and financial institutions who were not Robinhood customers”. This allegation is as mentioned in a lawsuit by Brenden Nelson in Massachusetts. And the lawsuit by Nelson is just one among the 50 suits filed against Robinhood. It was before the GameStop trading was halted in February.

Furthermore, Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement, 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.”

She added, “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.”

No regrets

As Robinhood is being charged by the largest penalty by FINRA. They denied giving a statement. However, Jacqueline Ortiz Ramsay, Robinhoods head of public policy communications, said, “We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all.”

It is a surprising response, considering the firm has done some serious damage on a large scale. Like the time when a trader was confused about having turned margin “on” and took his own like in June 2020. In his suicide note, he was confused and that he believed he did not turn on the margin account.

It is estimated that the misunderstanding cost a $7 million loss for the customers. And Robinhood neither admits nor denies to have caused such personal damage to people.

 

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