Risk & Compliance

Robinhood to Pay $70M to Settle FINRA Probe

"The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood’s violations."
Matthew HellerJune 30, 2021

Robinhood, the online brokerage that promised to “demystify finance,” has agreed to pay nearly $70 million to settle allegations that, among other things, it provided customers with false and misleading information.

The settlement with the Financial Industry Regulatory Authority, announced on Wednesday, requires Robinhood to pay a record fine of $57 million and $12.6 million in compensation for harmed investors.

“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,” FINRA Enforcement Chief Jessica Hopper said in a news release.

According to FINRA, Robinhood misled customers about whether they could place trades on margin, how much cash was in their accounts, how much buying power or “negative buying power” they had, the risk of loss they faced in certain options transactions, and whether they faced margin calls.

The regulator cited the case of a 20-year-old trader who committed suicide in June 2020 after he saw a negative balance of $730,000 in his trading account.

“In a note found after his death, he expressed confusion as to how he could have used margin to purchase securities upon assignment of the short leg of an options spread because, he believed, he had not ‘turned on’ margin in his account,” FINRA said.

Robinhood, which was launched in 2014, now has 31 million customers, 18 million of whom have funded accounts. “The enforcement action is a blow to the fast-growing online brokerage,” The Wall Street Journal said, noting that its forthcoming initial public offering is one of the most anticipated of the year.

FINRA also found that Robinhood had failed to exercise due diligence before approving customers to place options trades and failed to reasonably supervise its technology, resulting in a series of outages and critical systems failures.

“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 Robinhood spokesperson said.