Massachusetts  regulators have charged Robinhood Financial for engaging in aggressive tactics to attract inexperienced investors, using gamification strategies to manipulate customers and failing to prevent frequent outages and disruptions on its trading.

The administrative complaint is the first enforcement action of the Massachusetts Fiduciary Rule that Secretary of the Commonwealth William F. Galvin began enforcing in September, according to a new release today.

Citing Robinhood’s exponential growth since its founding in 2013, the complaint said the company employed advertising and marketing techniques meant to target younger, inexperienced investors. Robinhood, which earns revenue for trades executed by its customers, gave customers with no investment experience the ability to make a potentially unlimited number of trades, without properly screening them to be approved for options trading. The complaint said the median age of Robinhood’s customer is 31 and about 68% of Massachusetts customers approved for options trading on Robinhood report having limited or no investment experience.

The complaint said that between 2016 and 2018 Robinhood grew its customer base from abut one million to about six million, a 500% increase. Between the end of May 2019 and May 2020, the company grew its customer accounts by 30%, from about 10 million to about 13 million.

As of December 8, Robinhood had 486,598 Massachusetts customer accounts totaling more than $1.6 billion, the complaint said.

The complaint said Robinhood failed to take adequate steps to set up internal controls to protect customers and its platform during its rapid expansion. It noted that from January through November, the company experienced about 70 outages. One of the most notable outages occurred March 2 and lasted for nearly two days, which meant that customers were unable to access their accounts on the day that the Dow Jones Industrial Average saw its largest one-day gain to date, the complaint said. Only one week later, Robinhood experienced another outage amid a stock market plunge, adding that a week later, the company experienced another outage amid a   market plunge.

“Robinhood should have known well before March 2020 that the infrastructure of its trading platform was incapable of supporting the rapid expanding customer base,” the complaint said. It noted that the company faced disruptions every month throughout the remainder of the year to the tune of six in April, 15 in June and seven in August. Robinhood even admitted that its trading platform disruptions were in part the result of a lack of sufficient infrastructure, the complaint said.

The company, however, continues to invite more and more customers to open accounts, and encourages customers to use the platform constantly, the complaint said. “Once individuals become customers, Robinhood relentlessly bombards them with a number of strategies designed to encourage and incentivize continued and repeated engagement with its application,” the complaint said.

The state's Securities Division is seeking an administrative fine and an order requiring Robinhood to engage an independent compliance consultant to review its platform and infrastructure, as well as its policies and procedures.

Robinhood officials could not be reached for comment.