NASAA, seven state securities regulators reach $10.2M settlement with Robinhood

By Jay Fishman, J.D.

California and Texas securities regulators joined the regulators of Alabama, Colorado, Delaware, New Jersey, South Dakota and the North American Securities Administrators Association, Inc. (NASAA) in settling with Robinhood Financial LLC for $10.2 million. Robinhood was specifically penalized for:

• Negligent dissemination of inaccurate information to customers particularly concerning margin and risk associated with multi-leg option spreads;
• 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; and
• Failure to report all customer complaints to the Financial Industry Regulatory Authority (FINRA) and state securities regulators, as required.

The above-mentioned failures were sparked by the March 2020 Robinhood platform outages, when hundreds of thousands of investors were relying on the Robinhood app to make trades but were unable to do so. NASAA’s President Andrew Hartnett stated “Today’s multistate agreement represents states at their best – working together for the benefit of Main Street investors.” Texas Securities Commissioner Travis Iles said “We are pleased with the good work of the states and with Robinhood for implementing meaningful changes to its operations that will benefit retail investors. Texas also extends its appreciation to Director Joe Borg, Alabama Securities Commission, for his relentless, quality efforts in effectuating the states’ most recent result for our investors.”