- Robinhood overlooked red flags like transaction delays and suspicious activity, violating regulations.
- The company failed to monitor misleading posts from paid influencers.
- Robinhood will strengthen compliance, hire a consultant, and pay $3.75M in restitution.
Robinhood, has agreed to pay an astonishing $29.75 million to settle FINRA probes of its supervisory and compliance practices.
Robinhood’s Regulatory Failures
The deal follows a series of missteps that landed Robinhood in regulators’ crosshairs, such as anti-money laundering, supervisory, and customer protection rule breaches.
The issues began amidst heightened market instability, such as the GameStop trading bubble of early 2021. Robinhood was found to have overlooked “red flags” indicating potential illegal activity. Such as weeks-long delays in processing transactions, manipulative orders, and anomalous account activity.
Robinhood also created thousands of accounts with incomplete customer identification verification, in violation of anti-money laundering standards.
More worrisome in the investigation was that Robinhood did not monitor the social media messaging. Some of the posts, made by sponsored participants, deceived investors through false or promissory representations that were deemed as deceptive by FINRA.
In response to the results, Robinhood pledged to implement procedures to strengthen its compliance procedures. Which is including the engagement of an independent consultant to review its systems and further safeguard customer interests. The firm also has a $3.75 million customer restitution to harmed customers who were deceived by misleading disclosures.
This debacle is a stark reminder to investors that even the most successful platforms can possess serious operational flaws.
While Robinhood offers a compelling commission-free trading model. And its recent misadventures emphasize the importance of doing one’s homework and being familiar with the platforms we use to manage our investments. Always look for the fine print, as system failure. And lack of oversight, and conflicts of interest can put investors at risk.
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