The North American Securities Administrators Association (NASAA) said Thursday that Robinhood Financial will pay up to $10.2 million in penalties for operational and technical failures that harmed Main Street investors.
The settlement stems from an investigation spearheaded by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas regarding Robinhood's "operational failures" with respect to the retail market.
The investigation, according to NASAA, "was sparked by Robinhood platform outages in March 2020, a time when hundreds of thousands of investors were relying on the Robinhood app to make trades."
Before March 2021, "there were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm's monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping," NASAA adds.
Thursday's multistate agreement "represents states at their best — working together for the benefit of Main Street investors," NASAA President Andrew Hartnett said in a statement.
"Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies," Hartnett said.
The states' order found:
- Negligent dissemination of inaccurate information to customers, including regarding margin and risk associated with multi-leg option spreads;
- Failure to have a reasonably designed customer identification program;
- Failure to supervise technology critical to providing customers with core broker-dealer services;
- Failure to have a reasonably designed system for dealing with customer inquiries;
- Failure to exercise due diligence before approving certain option accounts; and
- Failure to report all customer complaints to FINRA and state securities regulators, as may be required.
While Robinhood neither admits nor denies the findings as set out in the states' orders, NASAA said the online brokerage app will provide access to a FINRA-ordered compliance implementation report to settling the states' recommendations.
