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The Robinhood app on a smartphone screen. Picture: REUTERS/BRENDAN MCDERMID
The Robinhood app on a smartphone screen. Picture: REUTERS/BRENDAN MCDERMID

Robinhood Financial  will pay a record $70m penalty to settle allegations from the US’s brokerage regulator that it misled millions of customers, had lapses tied to a March 2020 outage and that it let thousands of clients trade options that might not have been appropriate for them.

The case represents the largest financial sanction ever ordered by the Financial Industry Regulatory Authority (Finra), a decision that reflects the “scope and seriousness of the violations”, the watchdog said on Wednesday in a statement. Finra said its investigation found that Robinhood had “negligently” provided false information to its customers in certain periods dating back to 2016.

The penalty comes at critical time for Robinhood, which plans to hold an initial public offering later this year. The brokerage firm has faced criticism from legislators and regulators over its ties to the meme-stock frenzy that has roiled markets in 2021 and for claims that its popular app hooks neophyte investors on trading.

The Finra sanction includes a $57m fine and a demand that Robinhood pay about $12.6m to wronged customers. In settling the case, Robinhood neither admitted or denied the regulator’s allegations.

“Robinhood has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams,” said Robinhood representative Jacqueline Ortiz Ramsay in a statement.

In a Wednesday blog post, Robinhood said that it has added live phone support for certain areas, and more than tripled its customer support staff since March 2020, with about 2,700 people working in that area now.

The company also said that it improved how it manages its technology to reduce the risk of future outages, and added more supervision for options trading.

Robinhood struggled at times to keep up with demand for its free app since the pandemic began to shake financial markets last year. The company said in a February filing that it was in talks with Finra to resolve an inquiry about its March 2020 outages and practices involving options trading, which could cost at least $26.6m — the sum it agreed to pay was more than twice that amount.

Bloomberg News. More stories like this are available on bloomberg.com

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