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WASHINGTON (Reuters) – Online broker Robinhood Financial LLC has been ordered to pay $70 million for ‘systemic supervisory failures’ and causing ‘significant harm’ to millions of customers with misleading or false information and outages, an industry regulator said on Wednesday.
The firm will pay $12.6 million in restitution to thousands of consumers as well as a $57 million fine, the largest financial penalty ever issued by the Financial Industry Regulatory Authority (FINRA), the regulator said.
The online startup, which has been credited with helping popularize trading among millennials, has been the subject of scrutiny from regulators over its practices. It has also been seen as helping to fuel the “meme stock” craze as some retail investors who talk up stocks on social media also utilize the Robinhood app.
The resolution on Wednesday deals with Robinhood issues dating as far back as September 2016, FINRA said. Its investigation found that Robinhood negligently communicated false and misleading information to customers at certain times, exposed them to excessively risky trading tools such as options, and failed users when its services suffered multiple outages.
In one instance, a Robinhood customer took his life after becoming confused by messages on the platform and seeing an inaccurate negative cash balance in his account, FINRA said.
Since early 2020, Robinhood has overhauled its supervisory and communications procedures. That has included conducting monthly account reviews, providing more customer support and hiring attorneys who have worked as government regulators, Robinhood said in a corrective action statement.
“We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all,” a company spokesperson said.
In a separate resolution in December, Robinhood agreed to pay $65 million to the Securities and Exchange Commission (SEC) to settle charges it misled customers about its revenue sources.
