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American financial services company Robinhood will pay $70 million to settle a regulatory investigation. The Financial Industry Regulatory Authority (FINRA) has fined the California-based company $57 million and ordered it to pay nearly $13 million in restitution to thousands of clients.
FINRA is a non-government entity authorized by Congress and oversees thousands of brokers across America. The financial penalty ordered by FINRA is the largest it has ever issued.
Speaking on behalf of FINRA, Jessica Hopper, the Executive Vice President and Head of FINRA’s Department of Enforcement, said, “The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood’s violations, including FINRA’s finding that Robinhood communicated false and misleading information to millions of its customers.”
Over the past few years, Robinhood has come under fire multiple times. Its most recent indiscretion occurred during the GameStop rally in January 2021, when the company restricted trading.
During its investigation, FINRA found that Robinhood had sent millions of customers false or misleading information on various issues. The matters included how much money customers had in their accounts and whether they could place trades on margin, among other things.
The investigation showed that Robinhood’s customers lost over $7 million as a result of the inaccurate information that they were given. Robinhood is required to pay restitution to those who were impacted by the misleading information.
The settlement details several other issues surrounding Robinhood’s business conduct, too. These issues included approving risky options trades for thousands of users when it shouldn’t have and failing to report tens of thousands of client complaints to FINRA, which it is required to make known. Also, the company was accused of not doing enough in March 2020 to thwart system outages that adversely impacted millions of users.
Additionally, the report also referenced an unnamed client who took his own life in June 2020, which is most likely a reference to Alex Kearns. The 20-year-old investor received false information that he had a negative cash balance of $730,000 in his account, leading him to take his own life. This turned out to be inaccurate, with the value of his position being half of what the account displayed.
“We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all,” said Jacqueline Ortiz Ramsay, a spokesperson for Robinhood.
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