Robinhood Paying $70 Million Penalty in Largest-Ever FINRA Fine

September 14, 2021 Author: Brian Levin
wedbush securities

Regulatory Agency Notes ‘Widespread Harm’ to Customers in Record Making Financial Penalty

The Financial Industry Regulatory Authority (FINRA) announced the largest financial penalty ever against Robinhood Financial LLC for “systemic supervisory failures,” noting the substantial harm suffered by millions of its customers. 

The national securities law firm Levin Law, P.A. (“Levin Law”) continues to investigate Robinhood’s violation of FINRA rules. As noted in the sanctions ordered against the trading behemoth, the company is accused of communicating false and misleading information to clients leading to widespread harm. 

If you suffered financial losses as a result of Robinhood’s misconduct, contact Levin Law, P.A. at (305) 402-9050 or contact@levinlawpa.com for a free consultation. 

Fine Reflects the ‘Scope and Seriousness’ of the Violations

As noted in a FINRA News Release, the multimillion dollar fine was issued to reflect the “scope and seriousness of the violations.” Robinhood was ultimately ordered to pay a fine of $57 million and approximately $12.6 million in restitution to customers harmed by their failures. 

The company, which has a customer base exceeding 31 million, is alleged to have violated numerous FINRA Rules including providing false and misleading information to customers, failing to exercise due diligence before approving options accounts, and a failure to supervise critical technology leading to critical systems failures and a series of outages.

Reliance on Flawed Computer Algorithms

FINRA notes that Robinhood’s reliance on flawed computer algorithms and limited oversight to approve customers for options trading resulted in thousands of clients being approved for options trading that they would not otherwise have qualified for or was not appropriate for them.

Finally, Robinhood failed to report tens of thousands of customer complaints despite requirements under FINRA Rule 4530. Many of these complaints alleged that the company provided false and misleading information or that clients suffered substantial losses as a result of their widespread outages and systems failures.

Previous Allegations of Wrongdoing

According to a Letter of Acceptance, Waiver, And Consent (AWC) issued by the regulatory agency, Robinhood was previously sanctioned for a failure to implement a “reasonably designed supervisory system and procedures,” resulting in multiple rules violations. 

Furthermore, in December 2020, the company consented to findings with the Securities and Exchange Commission (SEC) for making “material misrepresentations and omissions.” In accordance with the Offer of Settlement, Robinhood agreed to a censure and $65 million civil money penalty.

Highest-Ever FINRA Fine

FINRA, by levying the highest ever fine against the company, has said that they hope to send a clear message that rules must be followed. The AWC specifically notes that many of the investors that Robinhood caters to are young and relatively new to investing. 

The company’s false and misleading statements regarding critical issues such as whether a customer could place trades on margin resulted in devastating outcomes, including significant losses and a suicide linked to their negligence.

Despite the previous two sanctions issued by FINRA and the SEC, Robinhood failed to make the necessary supervisory adjustments. These failures led to customers receiving inaccurate negative cash balances, losses far beyond their premiums, and thousands of clients being approved for options trading who did not qualify under the firm’s eligibility criteria.

Contact Levin Law for a Free Case Evaluation

If you were a Robinhood customer harmed by the company’s false or misleading statements, failure to supervise, or outages, and critical systems failures, contact Levin Law, P.A. for a free consultation. Call (305) 402-9050 or email contact@levinlawpa.com to discuss your legal options directly with managing partner Brian Levin.

Levin Law accepts most cases on a contingency fee basis, meaning that you would be responsible for Levin Law’s attorney fees unless money is recovered on your behalf.

About Levin Law

Levin Law is a premier national securities, commodities, futures, and class action law firm. Brian Levin, Levin Law’s founding attorney, has helped recover in excess of $100,000,000 through arbitration and litigation for individual and institutional investors throughout the country and the rest of the world. Levin Law represents retirees, individual investors, high-net-worth investors, ultra-high-net-worth investors, institutions, family offices, trusts, publicly held companies, and others.