Robinhood, an online brokerage platform, has agreed to pay $45 million in penalties to resolve allegations by the U.S. Securities and Exchange Commission (SEC). The investigation found that the company violated over 10 securities laws through two of its broker-dealer entities, Robinhood Securities LLC and Robinhood Financial LLC.
Excerpt of the SEC’s administrative and cease-and-desist proceeding with Robinhood. Source: SECWhat Did Robinhood Get Wrong?
The SEC accused Robinhood of failing to meet several regulatory requirements. Among the violations was the company’s failure to accurately report trading activities, a critical responsibility for brokerage firms. Robinhood also failed to comply with rules designed to regulate short-selling practices, specifically those outlined in “Regulation SHO.” Short selling involves selling borrowed securities with the aim of buying them back later at a lower price, and the regulation seeks to prevent abusive practices in this area.
Another issue was Robinhood’s delay in submitting suspicious activity reports, which are required under anti-money laundering regulations. Between January 2020 and March 2022, the company reportedly failed to submit these reports on time. Additionally, between April 2019 and July 2022, Robinhood did not implement adequate measures to protect customer information from identity theft.
In 2021, a cybersecurity vulnerability further exacerbated the situation. The issue allowed unauthorized access to customer data affecting millions of Robinhood users.
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Inaccurate Reporting Affected Over 392 Million Transactions
The SEC found that Robinhood had failed to preserve electronic communications from customers during 2020 and 2021. This failure hindered the company’s ability to comply with reporting requirements. Additionally, Robinhood submitted 11,849 Electronic Blue Sheets (EBS) to the SEC during this period. These sheets, which provide detailed trading data to regulators, contained inaccuracies or omissions. According to the SEC, these errors affected at least 392 million transactions.
Robinhood To Settle The Case By Jan.27
As part of the settlement, Robinhood Securities LLC will pay $33.5 million, and Robinhood Financial LLC will pay $11.5 million. Both penalties must be paid by January 27, 2025. In addition to the financial penalties, both entities admitted to certain findings outlined in the SEC’s order and agreed to be censured.
While the SEC’s findings did not explicitly link these violations to Robinhood’s cryptocurrency division, the company’s crypto operations have faced regulatory scrutiny in the past. In September 2024, Robinhood agreed to a $3.9 million settlement with the state of California. This case involved allegations that the company restricted crypto withdrawals for customers between 2018 and 2022.
The $45 million settlement did not significantly affect Robinhood’s stock price. On Jan. 14, Robinhood’s shares dropped by 1.22%, closing at $39.59.
Robinhood’s shares dropped by 1.22%. Source: Google FinanceThe post Robinhood to Pay $45 Million to Settle SEC Charges appeared first on Coinchapter.
