Robinhood will pay nearly $70 million to settle a federal investigation into its practices.
The Financial Industry Regulatory Authority (FINRA) alleged that the platform — which became popular after making commission-free securities trading accessible to first-time investors — has caused customers “widespread and significant” harm.
The Wall Street Journal reports that Robinhood agreed to a $57 million fine and $12.6 million in compensation for investors, who were affected by widespread outages that halted trading for many securities.
According to FINRA’s complaint:
In determining the appropriate sanctions in this matter, FINRA considered, among other factors, that Robinhood, over a period of at least five years, failed to establish and maintain a supervisory system that was reasonably designed to achieve compliance with FINRA rules and applicable securities laws and regulations, and as a result, experienced systemic supervisory failures in several critical parts of its business… FINRA considered the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the firm, thousands of customers who were approved to trade options even when it was not appropriate for them to do so, and millions of customers affected by the systems outages in March 2020.
Vice reported that federal attorneys seized CEO Vladimir Tenev’s phone during the investigation.
Earlier this year, a group of investors collectively decided to purchase shares of GameStop, AMC Entertainment, and other firms that were heavily “shorted” — in other words, “bet against” — by hedge funds and other institutional investors. When small-time buyers purchased shares en masse, the hedge funds experienced a “short squeeze,” thereby inducing multibillion-dollar losses.
Some entrepreneurs — including Dave Portnoy of Barstool Sports — blasted Robinhood and financial services company Citadel for restricting trades of GameStop.
“‘We are going to crash those stocks so all our hedge fund billionaire friends can get out and not get killed’ is one of the most remarkable, illegal, shocking robberies in history,” said Portnoy, who called for the imprisonment of Robinhood and Citadel executives for stopping “the everyday Jimmy and Joe” from investing “fair and square.”
Kevin O’Leary also slammed Wall Street investors for being sore losers.
“Old days where a hedge fund manager could quietly short a stock, then publish negative research and take a bullhorn to it in the media are over,” tweeted the Canadian entrepreneur. “They now run the risk that the power of the crowd will turn on them and squeeze their heads like a teenage pimple. I’m good with it!”
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Source: Dailywire
