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FINRA orders Robinhood to pay $70M for outages and deceiving users

Jinia Shawdagor by Jinia Shawdagor
July 2, 2021
Reading Time:2 mins read
FINRA orders Robinhood to pay $70M for outages and deceiving users
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The Financial Industry Regulatory Authority (FINRA) has directed Robinhood to pay approximately $70 million for its systemic supervisory failures and misleading its customers. The self-regulatory organization unveiled this news through a press release on June 30, saying this is the largest financial penalty it has ever issued. Through this fine, FINRA sought to show the seriousness of Robinhood’s violations.

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According to the press release, FINRA fined Robinhood $57 million and ordered the financial services company to pay $12.6 million in compensation and interest to thousands of clients. Explaining the heavy punishment on Robinhood, FINRA said it considered the widespread harm that the company caused its customers by offering misleading information.

Per FINRA, Robinhood negligently offered false information regarding whether customers could place trades on margin, how much cash was present in their accounts, how much buying power customers had, and the risks they faced by executing certain options transactions. As a result of this false information, a 20-year-old margin trader sadly took his life in June 2020 after believing that he had incurred massive losses. However, the truth of the matter was that Robinhood displayed an inaccurate negative cash balance in his account.

FINRA also pointed out that the company’s systemwide outages in March 2020, left users unable to trade equities, options, or cryptocurrencies amid one of the fastest bear markets in history. On top of this, the self-regulatory entity highlighted how Robinhood allowed thousands of customers to trade options even when it was inappropriate.

Compliance is mandatory

According to the Executive Vice President and Head of FINRA’s Department of Enforcement, Jessica Hopper, this action against Robinhood aims to send a message to all FINRA member firms. She added that all firms must observe rules that govern the brokerage industry, regardless of their size or business model.

Hopper went on to say that the rules seek to protect investors and ensure the integrity of markets. As such, adhering to these policies is mandatory, and no company should sacrifice them on account of innovativeness or the inclination to break things and fix them later.

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While Robinhood did not accept or refute these charges, it consented to the entry of FINRA’s findings. The company, which is set to go public later this year, claimed that it had invested in improving the stability of its platform. Apart from this, Robinhood’s Head of Public Policy Communications, Jacqueline Ortiz Ramsay, said the company has worked on improving its educational resources and expanding its customer support and legal compliance teams.

In a recent blog post, Robinhood disclosed that it had more than 2,700 employees on its customer support team. The company claimed that it is continuously growing this team to support its customers efficiently.

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Jinia Shawdagor

Jinia Shawdagor

Jinia Shawdagor is a fintech writer based in Sweden. Since 2013, she has been contributing unique articles to Cointelegraph, Invezz, Bitcoinist, and others.

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