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The Securities and Exchange Commission is investigating Robinhood’s options practices and its decision to restrict the trading of certain shares at the top
GameStop
mania last month, Robinhood said in a securities depository on Friday.
The trading platform – which is privately owned but expected to go public this year – made the revelation in an annual audit required of broker-dealers under the 1934 Securities Exchange Act.
Robinhood has angered investors and members of Congress over its decision since January 28 to restrict the purchase of certain shares, including GameStop (ticker: GME), BlackBerry (BB),
AMC Entertainment Holdings
(AMC) and Bed Bath & Beyond (BBBY). The company said it was forced to restrict trading due to rising financial demands from its clearing house.
Robinhood is also facing several other customer inquiries and lawsuits, which the company says could lead to financial penalties.
The state regulators and the financial industry regulator, or Finra, are also looking at trading options on Robinhood and the disruptions experienced by investment app users in March 2020. Robinhood is negotiating an agreement with Finra that could cost the company at least $ 26.6 million, the filing said.
The company’s stock practices have been under the microscope since a 20-year-old man named Alex Kearns committed suicide last year after expressing his suffering about trading options in his Robinhood account. The Kearns family filed a lawsuit against the company. Robinhood said it was “devastated” by Kearns’ death in June last year and that it was “committed to making Robinhood a place of responsible learning and investment.”
The company is also in the process of taking collective action on “account takeovers”, in which it appears that someone has gained access to Robinhood accounts.
Robinhood’s trade restrictions in January led to 46 lawsuits, the company said. And a long list of agencies is looking into the matter, including the U.S. Attorney’s Office in the Northern California District, the SEC’s Examinations Division, Finra, the New York Attorney General’s Office, other state prosecutors’ offices, and a number of regulators of state securities, “the company said.
“Due to the preliminary nature of all of these procedures, we are currently unable to estimate the likelihood or magnitude of any possible losses related to these issues,” Robinhood said.
Write to Avi Salzman at [email protected]