Robinhood Fined $29.75M for Ignoring Red Flags & Violations

Robinhood, an online trading platform, has agreed to pay $29.75 million to settle FINRA investigations. The penalties originated from three instances of violation associated with compliance, supervision, and Anti Money Laundering (AML) practices.

Settlement Details and Allegations

FINRA announced on March 7 that Robinhood would pay a $26 million civil fine and $3.75 million in restitution to affected customers. The regulator found that Robinhood failed to address “red flags of potential misconduct,” leading to multiple violations.

Robinhood Financial and Robinhood Securities were alleged for not having properly supervised their activities. The business reportedly did not prevent, investigate, or alert suspicious trading, third parties accessing accounts without authorization, or other odd financial transfers.

Furthermore, Robinhood was disclosed to have opened thousands of accounts without proper customer identity verification. According to FINRA, the company had failed to put in place effective AML programs to prevent fraudulent activity and monitor for the same.

Issues with Market Order Processing

Robinhood Financial reportedly failed to supervise its clearing system as demand increased between March 2020 and January 2021. FINRA said this led to processing delays and affected trading on the platform.

During this time, Robinhood also limited trading on heavily traded meme stocks such as GameStop (GME) and AMC Entertainment Holdings (AMC). The company also changed market orders into limit orders with little or no notification to customers, resulting in different processing of their trades.

As part of the settlement, Robinhood agreed to FINRA’s findings without admitting or denying the allegations.

Concerns Over Social Media Practices

Robinhood also did not properly monitor and keep records of its social media communications, as FINRA also found. According to the complaints, the company also reportedly did not adequately verify that posts from social media influencers who had been paid to promote posts were fair and balanced.

According to FINRA, some of Robinhood’s social media promotions included statements about the company’s financial outcomes or presented the information in a misleading way to investors. However, the regulator reminded that firms should ensure that all marketing and promotional content is clear, accurate, and non-deceiving.

Previous Regulatory Actions Against Robinhood

The settlement comes a month after Robinhood agreed to pay $45 million to the U.S. Securities and Exchange Commission (SEC) in January 2024. In that case, they had been accused of violating several securities laws, such as failing to preserve and maintain customer communications.

Nevertheless, Robinhood pulled in strong financial performance last quarter. This generated more than a billion dollars in revenue and also a record net income of $916 million for the company. Crypto-related transactions generated $358 million, a 200% increase from the previous year, with trading volumes rising 450% year over year to $71 billion.

The latest FINRA settlement remains unaddressed by Robinhood which has previously stated its commitment to enhancing compliance and regulatory practices.