FINRA imposes a record $ 70 million in fines on Robinhood
The American self-regulatory organization, the Financial Industry Regulatory Authority (FINRA), imposed a $ 70 million fine on the brokerage firm Robinhood. The reason for the record penalty was “significant damage” to customers.
In Wednesday’s announcement, FINRA said Robinhood was ordered to pay $ 57 million in fines to the regulator and pay $ 12.6 million in damages to designated clients. The agency said the company showed “systemic oversight errors as early as September 2016 and caused” significant damage “to thousands of users, some of whom are to receive compensation.
$ 7 million will go to people who reported incorrect negative cash balances in the broker application. The regulator cited the example of the suicide of 20-year-old Alexander Kearns, who took his own life in June 2020 after showing an overdraft of $ 730,000 on his account. As it turned out later, it was caused by a software bug.
Another $ 5 million will go to users affected by application crashes in 2018-2020. Some of them even lost tens of thousands of dollars when the Robinhood platform crashed in moments of high volatility in the markets. FINRA concluded that the most serious downtime was the failure on March 2-3, 2020.
In addition, the regulator said that Robinhood “casually provided false and misleading information to its clients.” It was about various issues, such as the risk of losses on options, purchasing power, or margin calls.
The fines imposed in this case, the highest ever imposed by FINRA, reflect the extent and gravity of the Robinhood violations, including FINRA’s finding that Robinhood provided false and misleading information to millions of its clients, the regulator said.
However, what turned out to be the worst offense of Robinhood (in the eyes of FINRA) was misleading the regulator himself. The company did not inform him of the tens of thousands of written complaints it received from customers, although it was under an obligation to do so. For this, and for the failure to provide customers with a clear picture of market data, as described above, the company had to pay a fine of $ 57 million to the regulator.