Trading app Robinhood has agreed to pay $65 million to settle charges from United States Securities Exchange Commission (SEC). The Federal agency accused the firm of “misleading customers” about its “revenue sources” between 2015 and 2018. The charge stated:
Material misrepresentations and omissions by Robinhood relating to its revenue sources, specifically its receipt of payments from certain principal trading firms, also known as electronic market makers, for routing Robinhood customer orders to them, and relating to certain statements about the execution quality Robinhood achieved for its customers’ orders.
SEC’s underlying Exchange Act requires broker-dealers, like Robinhood, to work to acquire the best deals for their customers. However, the agency said that Robinhood’s customers received inferior execution prices, compared to what they would have received from the firm’s competitors.
Robinhood Markets, Inc., is registered with the SEC and enables its users to invest in stocks, ETFs, and options through Robinhood Financial and crypto trading through Robinhood Crypto. It boasts over 13 million client accounts; these clients are offered to trade stocks and crypto, free of commission fees.
However, SEC said that by providing inferior trade prices, Robinhood deprived its customers of “$34.1 million,” in aggregate, “even after taking into account the savings from not paying a commission.”
The SEC further stated that Robinhood made these false and misleading statements during the time in which “it was growing rapidly.”
In other news, a report recently found that regulators in Massachusetts intended to file a legal complaint against Robinhood. Authorities alleged that the digital investment platform aggressively marketed to inexperienced investors without having any controls in place that offer to protect users. They also accused Robinhood of “failing to protect its customers as well as their assets.”