In a recent development, Robinhood is gearing up to pay a sum of $10.2 million in penalties as a result of failures that harmed a several investors. The California Department of Financial Protection and Innovation recently joined the multi-state settlement regarding the platform’s outages in March 2020. These outages resulted in the mass inability of investors to trade on the platform.
Throughout the investigation carried out by state regulators, it was discovered that Robinhood has major faults in a number of aspects of its operations. These regulators further argued that Robinhood had a sense of carelessness regarding overseeing the technology responsible for providing users with optimum broker-dealer services and failing to notify the concerned regulators about the mishaps.
The President of the North American Securities Administrators Association (NASAA) Andrew Hartnett said,
“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.”
An Insight Into the Robinhood Fiasco
States including Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas are among the ones that agreed to comply with the terms of the settlement. However, Robinhood also agreed in principle the previous year to settle a class action lawsuit, which was filed by its customers over frequent pandemic outages.
The settlement claimed that the platform has repeatedly and miserably failed to serve its clients and customers but now is when the firm starts prioritizing customer care obligations and diligently correcting all possible shortcomings.
Previously in March 2020, Robinhood was subject to a series of major system disruptions that inevitably led customers to miss out on trades, at the same time, when a majority of the features offered by the platform remained entirely inaccessible. You could not even buy crypto from them directly, one of their most known services. Later on, the platform went fully offline for an entire day as a result of a boom in online trading and a rapidly expanding customer base.
However, frequent outages like these greatly enraged the investors, which led to a series of lawsuits. This is not the first multi-million-dollar penalty for Robinhood. Back in 2021, the platform’s crypto arm was asked to pay a $30 million settlement for the NYDFS for allegedly violating regulatory requirements.
Similarly, the penalty followed after the payment of $65 million to the SEC in 2020 as a result of allegations about misleading customers. Robinhood was also slapped with a $70 million penalty by FINRA as a result of failing to protect its customers.