Attorney General Matthew J. Platkin and the Division of Consumer Affairs’ Bureau of Securities (“Bureau”) announced on Friday that the state has joined a multi-state settlement with Robinhood Financial LLC (“Robinhood”), which will pay up to $10.2 million in penalties for operational and technical failures that hurt investors.
The settlement is the result of an investigation by the North American Securities Administrators Association (“NASAA”), which was led by Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas state securities regulators. The investigation was about Robinhood’s operational failures in the retail market.
The review started when the Robinhood platform went down in March 2020, when hundreds of thousands of investors used the app to make trades.
Before March 2021, there were also problems with the way Robinhood reviewed and approved options and margin accounts, with the firm’s tracking and reporting tools, and with its customer service and escalation procedures.
Because of these problems, Robinhood users sometimes couldn’t make deals while the value of certain stocks was going down.
“Robinhood let down these people on Main Street who wanted to invest in their future,” said Platkin. “This settlement shows that we will step in to protect their customers when they don’t take care of them.”
In the agreement that ended the probe, the Bureau said that Robinhood had broken the law in the following ways:
- Failure to have a reasonably designed customer identification program.
- Failure to supervise technology critical to providing customers with core broker-dealer services.
- Failure to have a reasonably designed system for dealing with customer inquiries.
- Failure to exercise due diligence before approving certain option accounts.
- Failure to report all customer complaints to the Financial Regulatory Authority (“FINRA”) and state securities regulators, as may be required.
Robin Hood doesn’t agree or disagree with what the Bureau’s orders say.
Robinhood will give the settling states access to a compliance implementation report that was required by FINRA. Robinhood hired a separate compliance expert, who made suggestions for how to fix things.
Cari Fais, acting director of the Division of Consumer Affairs, said that Robinhood benefited from its image as a way for people with little experience to try investing in the stock market. “Its customers should have gotten better service than the operational problems that led to this settlement.”
Under the rules of the settlement, the Bureau fined Robinhood a total of $200,000 in civil money. Robinhood has also agreed to do a lot of things to fix their problems and meet their customers’ needs.
Acting Bureau Chief Amy Kopleton said, “Robinhood and other similar broker-dealer apps have grown quickly and helped people who have never invested before get started.” “Broker-dealers must look out for their clients’ best interests and set up systems to meet their needs for customer service.”
The Bureau’s job is to protect investors from fraud and keep the New Jersey securities business in check. The Bureau tells investors to “Check Before You Invest” by getting information about any financial professional who does business in or from New Jersey, such as their registration status and disciplinary past.
Investors can call the Bureau toll-free in New Jersey at 1-866-I-Invest (1-866-446-8378) or from outside New Jersey at (973) 504-3600.
They can also visit the Bureau’s website at www.NJSecurities.gov. Investors can also call the Bureau if they need help or have a problem with a financial professional or investment in New Jersey.