Robinhood Markets Inc. he told Massachusetts regulators on Friday that he was not taking advantage of inexperienced customers, capping a wild week during which popular online brokerage angered him for doing the exact opposite: standing in the way of customers.
Still hampered by an intense reversal of his decision this week to restrict customers from trading certain flights, Robinhood responded late Friday to a December complaint from Massachusetts regulators. The state accused Robinhood of failing to protect its customers and assets through aggressive marketing to inexperienced investors and failing to implement controls to protect them.
In a 50-page response, Robinhood called the allegations false and the complaint “distorts the Robinhood experience.”
Instead, Robinhood countered, helping to open the door to investment for millions of people. It rejected claims that brokerage gamifies investments, fails to maintain good technology operators and allows clients to engage in more risky options trading without the necessary qualifications. What’s more, Robinhood said, the elements for which she was criticized by regulators are legal.
“It is legal for customers to choose to receive notifications on their phones, join waiting lists and receive free shares. Application features, such as digital confetti, are legal, ”Robinhood said in his response. “It is also legal for these clients to trade options and Robinhood approves clients for options trading based on previous options experience.”
He continued: “And it is legal for Robinhood to have an application that, in isolated cases, has suffered temporary interruptions. All sites and applications are susceptible to disruption and many brokerage firms experience them. ”
A spokeswoman for William Galvin, the Commonwealth Secretary of Massachusetts, whose office filed the administrative complaint in December, declined to comment on Robinhood’s response, saying it is under review. She added that the office is still confident in its complaint “and recent events have not changed that”.
In just over a month, much has changed for online brokerage, where millions of users have gathered in recent years to place free transactions. In addition to the Massachusetts allegations, Robinhood now faces control from individual investors and members of Congress, who have accused the company of preventing users from taking advantage of a wild trading week. On Thursday, Robinhood was one of many brokerages that restricted hot trading, including GameStop Body.
and AMC Entertainment Holdings Inc.
Behind the scenes, Robinhood was quickly preparing an infusion of more than $ 1 billion to help the company meet the growing demand for cash from the frantic transaction.
In Friday’s response to the Massachusetts case, the company also disputed claims that it did not meet the “fiduciary standard” the state had recently adopted, which requires brokers to act in the interests of clients. The allegations focused on the tactics the company uses to keep customers involved, claiming that it “encourages customers to use the platform consistently” through what it calls “gamification”.
Robinhood argued that the fiduciary rule does not apply because, the brokerage argues, it is only relevant when a broker-dealer offers a client a recommendation or offers investment advice. Robinhood said in its response that its customers make their own trading decisions. He added the lists he offers, such as the 100 most popular shares, are the same for all customers and are not targeted to any specific customer or group. He also denied that it “gamifies” the experience for investors and said that criticizing the characteristics of applications such as confetti “reflects a distinctly outdated view of communication in the digital age.”
Robinhood has long been proud of the “democratization” of markets – and its moves this week to restrict trading have been seen by some as directly undermining its mission. In its response Friday, Robinhood reiterated the idea to regulators, with the brokerage claiming that in the three years since December 2017, it has saved Massachusetts customers between $ 180 million and $ 360 million in fees.
Robinhood also argued that “in the science of Robinhood”, securities regulators did not speak “with a single Robinhood employee during its investigation” or request “key documents” on topics, including technology disruptions and approval. options. Because of this, Robinhood argued, the regulators’ complaint was “in fundamental contradiction with the facts.”
Write to Caitlin McCabe at [email protected]
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