FINRA fines Robinhood about $70 million

In a statement on Wednesday, FINRA said it had ordered Robinhood to pay a $57 million fine to the regulator and provide about $12.6 million in restitution to certain customers. FINRA said the trading platform caused "extensive and significant harm" to thousands of users and engaged in "systemic supervisory failures" as early as September 2016.

“This is the largest penalty FINRA has ever issued, reflecting the scope and severity of Robinhood’s violations, as FINRA found that Robinhood provided false and misleading information to millions of customers,” said Jessica Hopper, Director of FINRA’s Division of Enforcement.

Among the false information cited by FINRA, Robinhood is accused of misrepresenting margin trading, the amount of cash users had in their accounts on the app, the risk of loss on options trades, how much buying power users had, and information about margin calls. According to the regulator, “Robinhood neither admitted nor denied the allegations but agreed to enter into FINRA’s findings.”

Regulators said the company was liable to pay $7 million in restitution to customers who reported erroneous negative cash balances in their accounts. The regulator cited 20-year-old Robinhood user Alexander Kearns, who committed suicide in June 2020 after his account had an erroneous negative balance of more than $730,000. In addition, FINRA ordered the trading platform to pay more than $5 million in restitution to users affected by Robinhood outages between 2018 and 2020, claiming that many users lost tens of thousands of dollars in trades that the platform was unable to execute during periods of huge market volatility.

The fine paid directly to FINRA appears to be based on Robinhood's corporate policies and its apparent failure to provide customers with accurate market data. The regulator said that between January 2018 and December 2020, the trading platform did not report thousands of user complaints to FINRA after all of the above problems occurred. In addition, Robinhood's process for approving customers for options trading relied on algorithms rather than "company leaders." FINRA said this approach has led to thousands of users being approved who did not meet the company's eligibility criteria or whose accounts should have been flagged.

FINRA's findings come as Robinhood is planning to move forward with its initial public offering (IPO). However, the company is currently under scrutiny by the U.S. Securities and Exchange Commission (SEC), which has reportedly caused the company to delay its plans to go public. Robinhood initially planned to launch its IPO this month, but has reportedly been delayed until July.