Robinhood, the popular trading platform, has been fined $29.75 million by FINRA (Financial Industry Regulatory Authority) for compliance failures. The company has faced penalties for not effectively managing its systems, failing to detect fraud, and mishandling customer accounts.
These issues occurred during the same period when Robinhood restricted trading in meme stocks like GameStop and AMC, which caused backlash from retail investors. So, what exactly went wrong?
FINRA found that Robinhood did not properly manage its system for processing trades despite clear signs of delays due to increased trading activity. This happened between March 2020 and January 2021, the same time when the platform limited trading in meme stocks. Robinhood also failed to respond to warning signs of potential misconduct, leading to violations related to Anti-Money Laundering and supervisory and disclosure.
Additionally, FINRA discovered that Robinhood did not do enough to detect and investigate suspicious activity, such as manipulative trades and unusual money transfers. The platform also opened thousands of customer accounts without properly verifying identities, violating anti-money laundering rules. Another issue was the failure to monitor and keep records of social media posts, including those from paid influencers, some of which were misleading or made unrealistic promises to investors.
As part of the settlement, Robinhood will pay $3.75 million in restitution to affected customers. These customers experienced financial losses due to the company providing incorrect or incomplete information about their market orders being changed to limit orders.
Robinhood Financial and Robinhood Securities agreed to FINRA’s findings without admitting or denying the charges. This settlement comes just two months after the company settled with the US Securities and Exchange Commission (SEC) for $45 million in January 2024. That case involved violations of multiple securities laws, including the failure to maintain and preserve customer communications.
Despite these regulatory challenges, Robinhood had a successful fourth quarter in 2024, achieving record-breaking financial performance. The company reported $916 million in net income, over $1 billion in total revenue, a 200 percent increase in crypto revenue amounting to $358 million, and a 450 percent jump in crypto trading volume reaching $71 billion.
Although Robinhood continues to grow, compliance issues remain a concern that could impact its future.
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