(FiveNation.com)- Trading app Robinhood will pay a huge $70 million in penalties, the Financial Industry Regulatory Authority announced recently.
The settlement in the case surrounds technical failures the company experienced back in March 2020, as well as the lack of due diligence it exhibited before allowing customers to make options trades. FINRA further said the fine was due to Robinhood communicating information that was misleading to its customers about things such as trading on margin.
In March of 2020, the stock market plunged as the coronavirus pandemic was just starting to hit the United States.
The penalties break down to a $57 million fine as well as $13 million in restitution that will be paid to thousands of the company’s clients. FINRA oversees all brokerage firms and registered representatives of those firms, and it a self-regulatory organization.
In a statement announcing the penalties, FINRA said:
“FINRA considered the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the firm, millions of customers affected by the firm’s systems outages in March 2020, and thousands of customers the firm approved to trade options even when it was not appropriate for the customers to do so.”
In early March of 2020, Robinhood experienced multiple days that it was done. This prevented clients from being able to trade options, cryptocurrency or equities through the app.
The major problem was this was occurring at what ended up being one of the fastest bear markets in the history of the stock market.
The popular trading app also received a lot of backlash over the case of a young trader who killed himself. The 20-year-old believed he owed the trading app for huge losses.
Responding to the penalties, Robinhood didn’t deny nor admit to the charges. Jacqueline Ortiz Ramsay, the company’s head of public policy communications, said:
“Robinhood has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams. We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all.”
Since the debacle in March 2020, Robinhood has tripled the size of its customer support staff. There are now roughly 2,700 employees working for the company in that role.
Robinhood executives knew that a fine of some sort was coming. They said they put $26.6 million aside to pay the settlements, according to an annual audit they filed with the SEC. Of course, the fine they ended up receiving was more than twice that amount.
The head of the Department of Enforcement at FINRA, Jessica Hooper, explained the fine by saying:
“The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood’s violations, including FINRA’s finding that Robinhood communicated false and misleading information to millions of its customers.”
This is the second fine Robinhood has received from FINRA. In 2019, the company was fined $1.25 million for violations of best execution.
The company is expected to go public in the coming months, with a valuation expected to be more than $30 billion.