The US FINRA Fines Robinhood $70 Million for Systemic Supervisory Failures

The US Financial Industry Regulatory Authority (FINRA) has ordered Robinhood, a California-based equities and crypto brokerage firm, to pay nearly $70 million in fines for causing harm to millions of customers due to its “systemic supervisory failures”.

In a press release on Wednesday, June 30, FINRA, announced that it had fined “Robinhood Financial LLC $57 million and ordered the firm to pay approximately $12.6 million in restitution, plus interest, to thousands of harmed customers.”

According to FINRA, Robinhood was not transparent to its customers since 2016. The firm negligently communicated false and misleading information to its customers. The FINRA said:

“The false and misleading information concerned a variety of critical issues, including whether customers could place trades on margin, how much cash was in customers’ accounts, how much buying power or “negative buying power” customers had, the risk of loss customers faced in certain options transactions, and whether customers faced margin calls.”

US Financial Industry Regulatory Authority (FINRA)

The situation led to the suicide of a Robinhood customer who turned off margin trading on his account, but a note found after his death showed that margin was used to buy securities despite turning off the margin. Furthermore, Robinhood displayed to this individual and some other customers inaccurate negative cash balances. Due to this, thousands of other customers suffered more than $7 million in total losses and Robinhood now has to pay these losses to customers.

Further allegations say that since the start of options trading in December 2017, Robinhood did not exercise due diligence before approving customers to place options trades. The firm used bots to approve accounts with limited oversight by the firm itself. These bots often approved accounts that were not eligible or options trading was not appropriate for them.

From January 2018 to February 2021, Robinhood experienced a series of outages and critical systems failures with the most serious occurring on March 2 and 3, 2020. During that outage, Robinhood’s website and mobile applications shut down, preventing Robinhood’s customers from accessing their accounts during a time of historic market volatility. These outages resulted in individual customers losing tens of thousands of dollars, and “FINRA is requiring that the firm pay more than $5 million in restitution to affected customers.”

Robinhood now has to pay $57 million in fines and 12.6 million in compensation for customers’ losses. According to FINRA, the firm has “consented to the entry of FINRA’s findings” without admitting or denying the charges.

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