Trading app Robinhood was ordered to pay roughly $70 million in fines for harming millions of customers. The penalty was the largest ever imposed by the Financial Industrial Regulatory Authority, Wall Street’s self-regulator.
The Financial Industrial Regulatory Authority (FINRA) said its sanctions on Robinhood were due to “systemic supervisory failures” and harming investors by giving them “false or misleading information,” CNN Business reported.
Last year, large-scale system outages struck Robinhood’s platform in March 2020.
FINRA levied fines of $57 million against Robinhood and ordered the startup to pay roughly $12.6 million in restitution, plus interest, to thousands of customers who were harmed by the company’s actions.
“The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood’s violations,” the head of FINRA’s department of enforcement, Jessica Hopper, said in a statement.
Robinhood was also sued for its options trading procedures, which was at the heart of a lawsuit filed by the family of a 20-year-old trader who died by suicide last year.
Robinhood has neither denied nor admitted to the charges. In response, the company noted it has invested heavily to improve the stability of the platform, as well as expand educational offerings, customer support, and its legal 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,” a spokesperson
Robinhood made widespread headlines back in January when the app temporarily banned users from buying shares of GameStop (GME) and other stocks. An army of at-home traders from a chat room called “WallStreetBets” on Reddit banded together and pushed the stock up by 1,500% in two weeks, squeezing out short-selling hedge funds, CNBC reported. The move by Robinhood prompted outrage among some lawmakers and investors, leading to calls for investigations in Washington, The Conversation reported.
Robinhood advertises itself as a commission-free stock trading and investing app. It has been likened to a kind of “Uber” of investing, making it easy for anyone to invest without needing a thousand dollars or more to open a brokerage account, as well as be able to buy half a share or fractions of shares of big-name stocks.
The company is a member of the SIPC, which protects funds of up to $250,000 for cash claims and up to $500,000 for securities. According to Wall Street Survivor, Robinhood is the fastest-growing brokerage service in the US with over 10 million users as of the end of 2020.