Robinhood Is Latest Firm to Be Sued Over Cash Sweep Program

As of Oct. 24, the interest rates that Robinhood paid or secured for cash deposits in the deposit sweep program were 0.01% for Robinhood customers, unless they paid a monthly fee to obtain a Gold account.

The Gold account pays a 4.5% interest rate, among other benefits, and costs $5 a month after a 30-day trial, according to Robinhood's website.

Pursuant to Reg BI, "Robinhood is and was required to act in the best interests of its clients when recommending an account type — including a cash sweep account — to its clients, including 'understanding of the characteristics of a particular type of account [and] should consider, without limitation, factors such as the services and products provided in the account (including ancillary services provided in conjunction with an account type),'" the suit states.

One component of a broker-dealer's duty to disclose conflicts of interest concerns compensation.

"The receipt of higher compensation for recommending some products rather than others, whether received by the broker-dealer, the associated person, or both, is a fundamental and powerful incentive to favor one product over another," according to the suit.

Under Reg BI, "Robinhood was and is prohibited from elevating its own interest above their clients' interests, and was and is obligated to avoid conflicts with clients' interests and to disclose material facts concerning any conflicts that may exist," the suit maintains.

Further, the suit states, "Robinhood's placement of uninvested cash from Plaintiff's and the Class's brokerage accounts into deposit accounts at the Program Banks as a part of the Deposit Sweep Program constitutes a 'recommendation' within the scope" of Reg BI.