Robinhood agrees to pay a $ 65 million fine for defrauding customers

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Specifically, the regulator said Robinhood did not disclose “receipt of payments from commercial firms for directing customer orders to them and failure to fulfill its duty to seek the best reasonably available conditions to execute customer orders.”

The SEC said Robinhood benefited from the completion of transactions at less than optimal prices for its customers. In total, these taxes deprived customers of $ 34.1 million, even after taking into account the savings from commission-free transactions.

Regulators said the scam took place at a time when the Robinhood trading app is growing rapidly in popularity. The company added 3 million accounts financed between January and April alone, a 30% increase, according to a previous company statement. About half of those new users were first-time investors.

“Robinhood has provided customers with misleading information about the real costs of choosing to trade with the firm,” said Stephanie Avakian, director of the SEC’s enforcement division. “Brokerage firms cannot mislead customers about the quality of order execution.”

Robinhood settled the case without pleading guilty and said it changed the practices cited in the complaint. The company claims to have significantly improved its practices and stated that it has established relationships with additional decision makers to ensure the best possible transactions for its customers.

“The agreement refers to historical practices that do not reflect Robinhood today. We recognize the responsibility that has come from helping millions of investors make their first investments, and we are committed to continuing to evolve Robinhood as we grow to meet the needs of our clients. . said Dan Gallagher, Robinhood ‘s legal director.

But the fast-growing company has faced criticism over other practices this year.

Regulators criticize Robinhood for targeting novice investors with aggressive marketing
Massachusetts regulators said Wednesday that the platform’s “gamification” of trading is designed to encourage and attract the continued and repetitive use of its trading application by its core Millennial customer base.
The agency said Robinhood violates state law and provides regulations by failing to take steps to protect its customers and protect its system from the dozens of outages and disruptions that have been triggered by this year’s rapid growth.

Robinhood said he did not agree with the state’s accusations and intended to defend himself “vigorously”. The company said it has improved its trading options, added more guarantees and improved educational materials.

“Millions of people have made their first investments through Robinhood, and we remain focused on serving them,” the company said in response to the Massachusetts complaint. “Robinhood is a self-directed broker-dealer and we do not make investment recommendations.”

In July, U.S. lawmakers criticized Robinhood after the apparent suicide of a 20-year-old student who saw a $ 730,000 negative account in his account that turned out to be incorrect. The company is committed to working with lawmakers to improve guarantees.

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