The United States regulators claim that Robinhood’s “operational and technical failures” harmed crypto investors.
Robinhood, the well-known stock and cryptocurrency trading platform, is poised to pay over $10 million in penalties following an investigation by the United States regulators.
According to the press release shared by the California Department of Financial Protection and Innovation (DFPI), the penalties stem from “operational and technical failures that harmed main street investors.”
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In March 2020, Robinhood experienced numerous system outages, leaving users unable to execute trades as many of its services were offline.
On April 6th, the California DFPI revealed that the settlement could amount to $10.2 million.
The investigation was a joint effort between the North American Securities Administrators Association (NASAA) and securities regulators from Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas.
When talking about the matter, NASAA president Andrew Hartnett noted:
Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies.
The DFPI accuses Robinhood of “negligent dissemination of inaccurate information to customers” regarding margin trading and risks tied to multi-leg option spreads.
On top of that, the order also highlighted the failures in the company’s customer service and transparency with FINRA and state regulators. As part of the settlement, Robinhood “neither admits nor denies” the regulators’ findings. The order reads:
There were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping.
Additionally, the US Financial Industry Regulatory Authority (FINRA) imposed a roughly $70 million fine on the company for causing “widespread and significant harm” to thousands of users.
At the beginning of March, Robinhood launched its crypto wallet on Apple’s App Store.