The Office of the Lieutenant Governor's Division of Banking, Insurance, and Financial Regulation has joined forces with multiple states in reaching a $10.2 million settlement with Robinhood Financial LLC, according to a statement from the OLG.
This development comes as Robinhood faces allegations over operational and technical shortcomings that disadvantaged main street investors.
Lieutenant Governor Tregenza Roach announced that the U.S. Virgin Islands will benefit from a $200,000 share of the settlement. Main street investors, as highlighted in the agreement, include individual consumers, small local businesses, small independent investment firms, and retail customers.
The proceedings began with an investigation launched by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas. The probe was initiated in response to a series of Robinhood platform outages in March 2020. At the time, hundreds of thousands of investors were depending on the Robinhood app for trading. Furthermore, investigators discovered deficiencies in Robinhood's approval processes for options and margin accounts prior to March 2021. Weaknesses in Robinhood's monitoring and reporting tools, along with inadequate customer service and escalation protocols, were also noted.
"Today's multistate agreement represents states at their best – working together for the benefit of main street investors. Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies," said NASAA President Andrew Hartnett.
The settlement lists numerous violations committed by Robinhood, including the negligent dissemination of inaccurate information to customers, insufficient customer identification programs, failure to supervise essential technology, inadequate system for handling customer inquiries, lack of due diligence in approving certain option accounts, and failure to report all customer complaints to FINRA and state securities regulators.
Under the terms of the settlement, Robinhood neither admits nor denies the allegations. However, the company will provide a FINRA-ordered compliance implementation report to the settling states. Robinhood has engaged an independent compliance consultant and has generally implemented the recommended remedial measures.
One year post-settlement, Robinhood is expected to confirm to Alabama, the lead state, that it has fully complied with the recommendations of the independent compliance consultant.
“This agreement reflects the ongoing efforts by state securities regulators to protect investors and make sure that they are treated fairly by financial services firms. We have found no evidence of willful or fraudulent conduct by Robinhood, which has fully cooperated with the investigation,” said Mr. Roach.
For further details or inquiries, contact the Office of the Lieutenant Governor Division of Banking, Insurance and Financial Regulation at 340-774-2991 Ext. 4512.
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