The Financial Industry Regulatory Authority (Finra) announced today that it has levied the largest financial penalties ever against Robinhood Financial LLC, hitting the firm with a $57 million penalty and ordering the firm to pay about $12.6 million in restitution plus interest to millions of customers harmed by its “systemic failures.”
Finra cited numerous examples of failings by the commission-free trading platform in its complaint, including one incident in which an investor was driven to commit suicide.
The penalties are part of a settlement that resolves other charges against Robinhood, including the firm’s failure to have a reasonably designed customer identification program and its failure to display complete market data information, Finra said.
In settling the matter, Robinhood did not admit nor deny charges but consented to the entry of Finra's findings.
The sanctions represent the biggest financial penalty in history ordered by Finra, the regulator said in a statement that underscored “the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the firm, millions of customers affected by the firm’s systems outages in March 2020, and thousands of customers the firm approved to trade options even when it was not appropriate for the customers to do so.”
“This action sends a clear message—all Finra member firms, regardless of their size or business model, must comply with the rules that govern the brokerage industry, rules which are designed to protect investors and the integrity of our markets,” jessica Hopper, Finra’s executive vice president and head of enforcement, said in a prepared statement. “Compliance with these rules is not optional and cannot be sacrificed for the sake of innovation or a willingness to ‘break things’ and fix them later.”
Finra found in its investigation “that despite Robinhood’s self-described mission to ‘de-mystify finance for all,’ during certain periods since September 2016, the firm has negligently communicated false and misleading information to its customers,” the regulator said.
According to Finra, the false and misleading information included 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.
One Robinhood customer “tragically took his own life in June 2020 after realizing he had unwittingly borrowed money on margin to make investments,” Finra said. In a note found after his death “he expressed confusion as to how he could have used margin to purchase securities because, he believed, he had not ‘turned on' margin in his account.”
Robinhood “also displayed to this individual (and certain other customers) inaccurate negative cash balances,” according to the settlement.