Robinhood has agreed to a $45 million settlement with the U.S. Securities and Exchange Commission after its broker-dealer entities were found to have violated multiple securities laws.
A SEC order made public on January 13, alleges that Robinhood Securities LLC and Robinhood Financial LLC committed more than ten violations of securities law provisions, ranging from failures to report suspicious activity to protecting customer information, including “between at least 2018 and April 2024.”
According to the commission, “both firms admitted certain findings in the order and agreed to be censured,” with Robinhood Securities agreeing to pay a $33.5 million fine and Robinhood Financial agreeing to pay an $11.5 million fine, bringing the total settlement to $45 million.
Robinhood Violations
From January 2020 through March 2022, the company failed to promptly investigate and report suspicious activity, undermining its obligations under anti-money laundering laws. In addition, Robinhood failed to implement adequate identity theft protection policies between April 2019 and July 2022, exposing customers to increased risks of fraud, the order said.
Cybersecurity vulnerabilities also plagued the platform. Notably, between June and November 2021, Robinhood failed to address known risks related to remote system access, allowing a third party to gain unauthorized access to sensitive data of millions of users.
Robinhood also failed to maintain and maintain out-of-channel communications and some customer communications between 2020 and 2021, violating federal securities laws.
In addition, from May 2019 through December 2023, Robinhood failed to comply with Regulation SHO, which governs short-selling practices, in its fractional share trading and share lending programs.
The SEC order further noted that both entities had violated multiple regulations under the federal securities laws, including provisions designed to protect customer privacy and ensure accurate record-keeping and reporting.
Further, Robinhood Securities also admitted errors in more than 11,800 electronic blue sheets filed with the SEC over a five-year period, leading to inaccurate reporting of at least 392 million trades. EBS are formal data requests used by regulators to monitor trading activity and investigate potential market abuse.
Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, emphasized the importance of broker-dealers meeting their legal obligations to maintain market integrity and fairness in a statementnoting that such compliance is “essential to the Commission’s broader efforts to protect investors and promote the integrity and fairness” of financial markets.
Robinhood’s crypto activities were not mentioned in the order or included in the scope of these violations; However, that doesn’t mean the company is out of the water. Last year, the brokerage firm received a notice from Wells from the SEC.
According to a filing with the regulator at the time, the SEC staff recommended taking enforcement action regarding Robinhood’s cryptocurrency listings, custody practices and platform activities.
The commission currently has civil enforcement cases pending against several high-profile crypto companies, including Binance, Coinbase, and Ripple Labs.
