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Robinhood to Pay more than $10 Million in Penalties for Operational and Technical Failures

Robinhood, the popular cryptocurrency and stock trading platform, will reportedly pay over $10 million in penalties for operational and technical failures that harmed its customers. The California Department of Financial Protection and Innovation (DFPI) announced the settlement on April 6, 2023, resulting from an investigation by the North American Securities Administrators Association (NASAA) in collaboration with securities regulators from seven states, including California, Colorado, and New Jersey.

The DFPI order accused Robinhood of repeatedly failing to serve its clients, resulting in system outages in March 2020 that caused users to miss out on trades while many of its services were unavailable. As a result of the investigation, Robinhood will pay up to $10.2 million in penalties for its operational and technical failures.

Negligent Dissemination of Inaccurate Information

The order further accused Robinhood of negligent dissemination of inaccurate information to customers regarding margin trading and multi-leg option spreads, as well as failures related to services available to customers and transparency with the Financial Industry Regulatory Authority (FINRA) and state regulators.

While Robinhood neither admits nor denies the regulators’ findings, the penalties significantly blow the trading platform. The U.S. Financial Industry Regulatory Authority had previously penalized the firm for approximately $70 million for causing widespread and significant harm to thousands of users.

Lawsuits and Investigations

Robinhood’s system outages led to affected users filing a class-action lawsuit against the platform. Additionally, in August 2022, the New York Department of Financial Services announced a $30 million penalty on Robinhood’s crypto business arm for alleged anti-money laundering, cybersecurity, and consumer protection laws violations. Moreover, the U.S. Securities and Exchange Commission issued an investigative subpoena against the firm in December 2022 for its crypto listings and custody services.

Reactions to the Settlement

According to NASAA President Andrew Hartnett, the settlement clarifies that Robinhood must take its customer care obligations seriously and correct deficiencies. Meanwhile, the DFPI order accused Robinhood of failing to serve its clients, emphasizing the need for the platform to address its operational and technical failures. The penalties and investigations facing Robinhood highlight the need for financial services companies to prioritize their customers and comply with regulations to avoid significant harm to their users.