Online brokerage platform Robinhood has reached a $45 million settlement with the U.S. Securities and Exchange Commission (SEC) after an investigation revealed multiple securities law violations. The penalty impacts Robinhood’s two broker-dealers, Robinhood Securities LLC and Robinhood Financial LLC, and stems from failures in maintaining regulatory compliance between 2020 and 2021.
In a statement released on January 13, the SEC outlined several breaches, including Robinhood’s failure to accurately report trading activity, comply with short sale rules, and submit timely suspicious activity reports. The company also neglected to safeguard customer information and maintain necessary books and records. The SEC further highlighted that Robinhood entities failed to preserve electronic communications from customers and submitted inaccurate Electronic Blue Sheets, formal requests for information to the SEC.
Moreover, the investigation uncovered that Robinhood neglected to report suspicious activity in a timely manner from January 2020 to March 2022 and failed to enforce adequate identity theft protection measures between April 2019 and July 2022. The SEC also cited Robinhood’s failure to comply with “Regulation SHO,” a rule meant to curb abusive short-selling practices, from December 2019 to May 2022. Additionally, a cybersecurity vulnerability in 2021 allowed unauthorized access to millions of customer accounts.
While both Robinhood Securities and Robinhood Financial admitted to certain findings, they have agreed to pay penalties of $33.5 million and $11.5 million, respectively. Both penalties must be paid by January 27. Despite the settlement, Robinhood’s stock (HOOD) saw a minimal decline of 1.22% to $39.59 on January 13, with a slight recovery in after-hours trading.
The settlement does not shed light on whether Robinhood’s cryptocurrency operations contributed to these violations, although the platform’s crypto business reached a separate $3.9 million settlement with California last year over withdrawal restrictions between 2018 and 2022. Robinhood’s crypto trading volume surged in Q3 2023, indicating strong growth in its digital assets division.
This settlement underscores the growing regulatory scrutiny facing online brokerages and their operations, particularly in safeguarding customer data and adhering to market rules.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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