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Robinhood’s Luster Stained Again With a Record $70 Million Fine

Bloomberg | Annie Massa and Benjamin Bain | Jun 30, 2021

Robinhood Markets Inc.Finra2 - Robinhood’s Luster Stained Again With a Record $70 Million Fine unleashed a revolution, marshaling throngs of new traders to financial markets in an upside-down year.

But the free trading app’s breakneck growth hurt the same small-time investors it sought to empower.

That’s the accusation leveled by Wall Street’s self-funded watchdog, which extracted almost $70 million from the brokerage in a record settlement Wednesday, including a $57 million fine and about $12.6 million in payments to aggrieved customers.

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It follows Robinhood’s meteoric rise against the backdrop of the Covid-19 pandemic and the frenzy over hot stocks such as GameStop Corp. that warped the realm of retail trading.

Robinhood’s settlement with the Financial Industry Regulatory Authority also comes at a crucial moment, as the brokerage prepares a public offering this year, a move that will require the trust of small-time investors and mainstream financial institutions alike. Though Robinhood long stood out as one of Silicon Valley’s biggest threats to Wall Street’s status quo, Finra signaled its impatience with the “move fast and break things” approach embedded in the tech industry’s DNA.

Complying with rules governing brokerages “is not optional and cannot be sacrificed for the sake of innovation or a willingness to ‘break things’ and fix them later,” Jessica Hopper, Finra’s head of enforcement, said in a statement.

The agency accused Robinhood of misleading customers, having weak technology oversight and allowing thousands of users to trade options even though they may not have been suitable candidates, among other infractions.

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Robinhood, which didn’t admit or deny the allegations, published a blog post Wednesday saying it made improvements, including more than tripling customer-support personnel since March 2020 to about 2,700 people. The firm also changed how it manages technology and options trading.

Regulators, lawmakers and investor advocates have questioned whether Robinhood is responsibly handling that expansion and exposing novice traders to investment products they don’t understand.

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