A call placed to Robinhood for comment was not immediately returned.
In a blog posting on Robinhood's website today, the company said it has made a number of changes in its customer service opperations. "Here at Robinhood, we take our responsibilities to our customers very seriously," the company said. "We want to bring you up to speed on what’s been happening recently. We’ve made investments in expanding customer support - and are now offering phone support for several areas, including options and equities trading, account security, and other use cases. We’ve enhanced our options offering, education about options, and how information is displayed in the app."
Finra said that due to Robinhood’s inaccurate statements, “thousands of other customers suffered more than $7 million in total losses.” To settle the matter, Robinhood is required to pay more than $7 million in restitution to these customers.
Finra also found that since Robinhood began offering options trading to customers in December 2017, the firm has failed to exercise due diligence before approving customers to place options trades. As a result, “Robinhood approved thousands of customers for options trading who either did not satisfy the firm’s eligibility criteria or whose accounts contained red flags indicating that options trading may not have been appropriate for them,” the regulator said.
The firm relied on algorithms—known at Robinhood as “option account approval bots”—to approve customers for options trading, with only limited oversight by firm principals, Finra said. “Those bots often approved customers to trade options based on inconsistent or illogical information. As a result, Robinhood approved thousands of customers for options trading who either did not satisfy the firm’s eligibility criteria or whose accounts contained red flags indicating that options trading may not have been appropriate for them.”
Finra also ordered Robinhood to pay $5 million in restitution to customers who suffered losses when the firm’s technology and mobile app shut down trading during high market volatility for two days in March.
“From January 2018 to February 2021, Robinhood failed to reasonably supervise the technology that it relied upon to provide core broker-dealer services, such as accepting and executing customer orders," Finra said. "As a result, Robinhood experienced a series of outages and critical systems failures. The most serious outage occurred on March 2 and 3, 2020, when Robinhood’s website and mobile applications shut down, preventing Robinhood’s customers from accessing their accounts during a time of historic market volatility. Although the firm had a business continuity plan at the time of the March 2-3 outage, it did not apply it because the plan was unreasonably limited to events that impacted the firm’s physical location.”
The firm’s “inability to accept or execute customer orders during these outages resulted in individual customers losing tens of thousands of dollars,” the regulator said.
Finra also said that between January 2018 and December 2020, Robinhood failed to report to regulators “tens of thousands of written customer complaints that it was required to report.” Customers charged in complaints that “Robinhood provided customers with false and misleadin”g information, and that customers suffered losses as a result of the firm’s outages and systems failures,” the regulator said.
Robinhood’s failure to report customer complaints was “primarily the result of a firm-wide policy that exempted certain broad categories of complaints from reporting, even though those categories fell within the scope of Finra's reporting requirements,” Finra said.