Robinhood agrees to $65 million civil penalty to resolve SEC charges
Robinhood advertises its trading services to customers as “commission free,” but the agency said that contradicted with what it called the “unusually high payment” the company charges for order flow rates, prices that deprived customers of $34.1 million.
The company grew rapidly from October 2018 June 2019, during which it claimed on its website FAQ that its execution quality matched or beat its competitors — statements that the SEC categorized as false and misleading.
“Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm,” Stephanie Avakian, director of the SEC’s Enforcement Division, said in the release. “Brokerage firms cannot mislead customers about order execution quality.”
Robinhood agreed to pay the $65 million civil penalty without admitting or denying the allegations, as well as adhere to a cease-and-desist order to not violate federal antifraud and record-keeping provisions.
“The settlement relates to historical practices that do not reflect Robinhood today,” Dan Gallagher, chief legal officer for Robinhood, said in an emailed statement. “We recognize the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve Robinhood as we grow to meet our customers’ needs.”
It also agreed to keep an independent consultant to oversee the company’s policies and procedures for customer communications, payment for order flow and best execution of customer orders, according to the SEC.
“We are fully transparent in our communications with customers about our current revenue streams, have significantly improved our best execution processes, and have established relationships with additional market makers to improve execution quality,” a Robinhood spokeswoman said.
The SEC findings came a day after Massachusetts regulators accused the trading app of predatory marketing.
“Robinhood failed to seek to obtain the best reasonably available terms when executing customers’ orders, causing customers to lose tens of millions of dollars,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “Today’s action sends a clear message that the Commission will not allow brokers to ignore their obligations to customers.”
