SACRAMENTO, Calif.—The California Department of Financial Protection and Innovation (DFPI) has joined a multi-state settlement with Robinhood Financial LLC, which will pay up to $10.2 million in penalties for operational and technical failures.
The department said Robinhood had harmed “Main Street investors.”
The settlement stems from a North American Securities Administrators Association (NASAA) investigation spearheaded by state securities regulators from Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas regarding Robinhood’s operational failures with respect to the retail market, the DFPI said.
“The investigation was sparked by Robinhood platform outages in March 2020, a time when hundreds of thousands of investors were relying on the Robinhood app to make trades,” according to the DFPI.
‘Deficiencies’ Identified
In addition, the DPFI said that prior to March 2021 there were “deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping.”
“Today’s multistate agreement represents states at their best – working together for the benefit of Main Street investors,” said NASAA President Andrew Hartnett. “Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies.”
Specific Violations
The order sets out the following violations:
- Negligent dissemination of inaccurate information to customers, including regarding 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
- Failure to report all customer complaints to the Financial Industry Regulatory Authority (FINRA) and state securities regulators, as may be required
Robinhood neither admits nor denies the findings as set out in the states’ orders, the DFPI said.
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