Resolving Probe
On the regulatory front, Robinhood’s most pressing issue is the joint SEC-Finra investigation. But the broker is also looking to establish good relations with other agencies, including the Treasury Department, Consumer Financial Protection Bureau, FTC and overseers in each state.
To guide the company through that thicket, Robinhood brought on Gallagher, 48, as chief legal officer in May. An attorney who specializes in the often arcane world of broker regulation, Gallagher is friendly with lawmakers of both parties and more comfortable in the Washington uniform of a suit and tie than the tech world’s hoodie and Allbirds sneakers. He’s also brought deep relationships with government officials to the firm. Among his close confidants is SEC Chairman Jay Clayton.
Last month, Gallagher hired another SEC insider, ex-Clayton Chief of Staff Lucas Moskowitz, to run Robinhood’s regulatory, litigation and lobbying efforts. Moskowitz has worked for Republicans on the House Financial Services Committee and the Senate Banking Committee, and he’s been an enforcement lawyer at the SEC. Robinhood also named new chief compliance officers at two subsidiaries in August, one who came from Wells Fargo & Co.’s brokerage and another from Fidelity.
Another concern for Robinhood is that the firm’s surging popularity -- particularly among traders who will make up the next generation of investors -- has other online brokers gunning for it. The rivals, not surprisingly, have been eager to point out Robinhood’s setbacks in discussions with politicians and regulators, as well as in public comments.
Morgan Stanley Chief Executive Officer James Gorman, for instance, praised his bank’s acquisition of E*Trade Financial Corp. on a July 16 earnings call, drawing a distinction with Robinhood’s troubles, and taking a subtle dig at the firm though not mentioning it by name. E*Trade, Gorman said, has added hundreds of thousands of new accounts without suffering major breakdowns during the pandemic. “But with that has come real money, not just kids playing,” he said.
Numerous Complaints
The FTC complaints obtained by Bloomberg News, which cover the March outage, do show a wide disparity between Robinhood and its peers. From January through mid-July, the agency had received 473 reports about Robinhood, compared with 126 for Schwab, 111 for E*Trade, 69 for Fidelity and seven for Interactive Brokers Group Inc.
Looking to make sure that its competitors don’t succeed in framing the narrative about Robinhood in Washington, the company this month retained four outside government relations firms. Some of the lobbyists have longstanding connections to the SEC and Gallagher, including Justin Daly, a former Senate Banking and SEC aide, and Walton Liles and Ben Brown of Blue Ridge Law & Policy. Two others -- The Williams Group and Thorn Run Partners -- have Democratic ties.
One point the lobbying effort wants to get across is that while Robinhood’s investors may be younger, not all are day traders. Many use a buy-and-hold strategy, and those with less money can purchase fractional shares that allow them to diversify their portfolios with more expensive blue-chip stocks. The company also provides numerous educational materials on its app.
Robinhood adds that it’s addressing its customer-service problems. Dusseault, Robinhood Financial’s president, said in his letter to lawmakers that the company was on a hiring binge and would end 2020 with almost triple the amount of representatives that it employed in January, including some who are registered brokers. Still, he didn’t promise that there would be a phone number investors could easily find and call when they need help.
“We’ve found that, currently, we’re best able to reach customers quickly over email,” Dusseault wrote.
This article was provided by Bloomberg News.