Multifaceted trading platform Robinhood will pay a $10 million fine to DFPI after a NASA investigation.
Robinhood (NASDAQ:HOOD) has reached a $10.2 million settlement with the California Department of Financial Protection and Innovation (DFPI). According to reports, the financial services company is paying a fine for “operational and technical failures” that hurt investors.
The Robinhood settlement follows an investigation by the North American Securities Administrators Association (NASAA). NASA has looked into complaints about the company’s system outages and unavailability of service costing users many business opportunities. During the Robinhood investigation, the oldest international investor protection organization worked closely with securities regulators from seven countries. These include California, Texas, New Jersey, Colorado, Alabama, Delaware, and South Dakota.
in press releaseAndrew Hartnett, President, North American Securities Managers Association, said:
“The multi-state agreement represents states at their best – working together for the benefit of Main Street investors. Robinhood has repeatedly failed to serve its customers, but this settlement demonstrates that Robinhood must take its customer service obligations seriously and correct these shortcomings.”
Robinhood settlement concludes 2-year investigative development
After the system outage, Robinhood’s operations came under intense scrutiny in March 2020. At the time of the “shortage”, a large number of investors were using the platform to make trades. However, Robinhood’s system failure made the services unavailable, causing users to lose trades.
The regulators have accused Robinhood of “careless publication of inaccurate customer information.” In addition, the company has also been criticized for failing to create proper customer identification software.
Regulators have accused Robinhood of failing to oversee technology that has been central to providing essential brokerage and brokerage services to clients. The exchange-traded fund and cryptocurrency platform reportedly failed to report customer complaints to the Financial Industry Regulatory Authority.
According to the DFPI, Robinhood has not admitted wrongdoing or denied the allegations against it. Instead, the government agency stated that Robinhood had fully cooperated with the investigation. Furthermore, the DFPI found no evidence of fraudulent behavior by the Menlo Park-based trading app. However, DFPI Commissioner Clothilde Hewlett noted that “Robinhood must comply with the common sense protections of investors and consumers as required by law.”
Class action lawsuit and FINRA fine
Robinhood saw a lot of growth at the start of the pandemic, with many people doing trades from home. However, a class action lawsuit was filed against the company after it experienced outages affecting thousands of users. In June 2021, the Financial Industry Regulatory Authority (FINRA) ordered Robinhood to pay nearly $70 million in damages. At the time, FINRA’s Chief Enforcement Officer, Jessica Huber, said:
“The fine imposed in this matter, the highest ever imposed by FINRA, reflects the range and severity of Robinhood’s violations, including FINRA’s finding that Robinhood passed false and misleading information to millions of its customers.”
According to FINRA, countless users have suffered “widespread and significant harm” from the outage after seeing incorrect negative cash balances in their accounts. Among the victims was a 20-year-old Robinhood user who committed suicide in June 2020 after a false negative balance exceeded $730,000.
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Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify cryptocurrency stories down to the bare essentials so that anyone anywhere can understand without much background knowledge. When he’s not deep into cryptocurrency stories, Tolo enjoys music, loves to sing, and is a movie lover.
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