Emily Walker
Robinhood Markets has settled with the US Securities and Exchange Commission (SEC), agreeing to pay $45 million following violations related to blue sheet filing, identity theft, and suspicious activity reporting. This settlement stems from a data breach in 2021 that compromised customer information.
The trading activities are primarily managed by Robinhood’s two main brokerages – Robinhood Securities and Robinhood Financial. The SEC has mandated that both will jointly pay the penalties.
This $45 million payout adds to a growing list of legal expenses faced by Robinhood, a company known for its rapid expansion since its inception in 2012, primarily for offering zero-commission trades that appealed to younger investors.
SEC Highlights Violations by Robinhood
The SEC released a statement on January 13, outlining numerous rule breaches by Robinhood. According to Sanjay Wadhwa, the acting enforcement director, Robinhood Markets failed to adhere to various regulatory standards, particularly in areas of accurate trading activity reporting, compliance with short sale regulations, and safeguarding customer information.
The SEC says that two Robinhood broker-dealers agreed to pay $45M in combined penalties to settle charges that they violated over 10 securities law provisions (@_danmangan / CNBC)https://t.co/dWl9YmL5Xmhttps://t.co/rabOpEr6Nfhttps://t.co/ZOzeer1FAj
— Techmeme (@Techmeme) January 13, 2025
The SEC also pointed out that Robinhood submitted over 11,000 Electronic Blue Sheets with significant errors or omissions. The company accepted some findings in the SEC’s documentation.
Inaccurate Reporting of Activities
As per the SEC’s findings, Robinhood failed to promptly report suspicious trading activities between January 2020 and March 2022. Furthermore, they failed to implement reasonable identity theft protections for customers from April 2019 to July 2022.
Additionally, Robinhood did not comply with “Regulation SHO,” a rule designed to protect investors from abusive short-selling. The SEC reported that the firm failed to safeguard customer interests from December 2019 through May 2022 and inadequately addressed security flaws on its platform in 2021.
The company’s failures led to a significant data breach, affecting millions of users.
Robinhood’s Financial Settlement
While both broker dealers did not contest some allegations, they consented to pay the financial penalties. Robinhood Financial will disburse $11.5 million, while Robinhood Securities will pay $33.5 million, with a deadline for settlement by January 27th.
The SEC’s announcement had little effect on Robinhood’s stock performance. On January 13th, shares fell to $39.59, down 1.22%, before slightly recovering by 0.48% by the end of the trading day.
Robinhood’s Involvement in Cryptocurrency
Robinhood Markets also engages in crypto trading, providing users with options not just for stocks, but also for cryptocurrencies like Bitcoin, Ethereum, and Dogecoin through its subsidiary, Robinhood Crypto.
The platform has gained popularity among retail investors due to its straightforward interface and no-commission trading model. Robinhood has enhanced its crypto services by offering wallets for users to manage cryptocurrency transfers, making it a significant contributor in the cryptocurrency market for beginners and retail traders.
Featured image from Newsweek, chart from TradingView