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FINRA Orders Historic Financial Penalty Against Robinhood Financial LLC for Systemic Supervisory Failures

July 1, 2021

On June 30, 2021, Robinhood Financial LLC agreed to a Letter of Acceptance, Waiver and Consent (AWC) (Case No. 2020066971201)  which included $57 million fine and an order to pay approximately $12.6 million in restitution, plus interest, to thousands of harmed customers by the Financial Industry Financial Authority (FINRA), which is the securities industry regulator established to protect investors. The fine and restitution order is due to Robinhood Financial LLC’s systemic supervisory failures.

Regulatory Findings – Supervisory Failures Relating to Options Trading

According to FINRA investigations, during certain periods since September 2016, “the firm has negligently communicated false and misleading information to its customers. The false and misleading information concerned a variety of critical issues, including whether customers could place trades on margin, how much cash was in customers’ accounts, how much buying power or ‘negative buying power’ customers had, the risk of loss customers faced in certain options transactions, and whether customers faced margin calls.”

Second, FINRA determined that “since Robinhood began offering options trading to customers in December 2017, the firm has failed to exercise due diligence before approving customers to place options trades. The firm relied on algorithms—known at Robinhood as “option account approval bots”—to approve customers for options trading, with only limited oversight by firm principals. Those bots often approved customers to trade options based on inconsistent or illogical information. As a result, Robinhood approved thousands of customers for options trading who either did not satisfy the firm’s eligibility criteria or whose accounts contained red flags indicating that options trading may not have been appropriate for them.” Having failed both to reasonably supervise its system for approving customers for options trading and to exercise due diligence in approving customers for options trading, FINRA found that Robinhood violated FINRA Rules 3110, 2360, and 2010.

Third, FINRA found that, from January 2018 to February 2021, Robinhood “failed to reasonably supervise the technology that it relied upon to provide core broker-dealer services, such as accepting and executing customer orders. Between 2018 and late 2020, Robinhood experienced a series of outages and critical systems failures … Robinhood’s inability to accept or execute customer orders during these outages resulted in individual customers losing tens of thousands of dollars, and FINRA is requiring that the firm pay more than $5 million in restitution to affected customers.”

Finally, between January 2018 and December 2020, FINRA stated that “Robinhood failed to report to FINRA tens of thousands of written customer complaints that it was required to report. Robinhood’s reporting failures included complaints that Robinhood provided customers with false and misleading information, and that customers suffered losses as a result of the firm’s outages and systems failures.”

KlaymanToskes Can Help Recover Investment Losses Due to Robinhood Financial LLC

For investors with investment losses that exceed $100,000 relating to Robinhood Financial LLC’s supervisory failures, especially those investors who were approved for options trading and suffered losses, as well as those having information relating to the manner in which the firm handled their accounts, are encouraged to contact Lawrence L. Klayman, Esq., at (561) 542-5131 and lklayman@klaymantoskes.com, and download our Special Investor Report.

About KlaymanToskes

KlaymanToskes is a leading national securities law firm which practices exclusively in the field of securities arbitration and litigation, on behalf of retail and institutional investors throughout the world in large and complex securities matters. The firm represents high net-worth, ultra-high-net-worth, and institutional investors, such as non-profit organizations, unions, public and multi-employer pension funds. KlaymanToskes has office locations in California, Florida, New York and Puerto Rico.