Online brokerage platform Robinhood has agreed to pay $45 million in civil penalties to the U.S. Securities and Exchange Commission (SEC) to resolve allegations of violating over 10 securities laws. The charges impacted two of its broker-dealer units: Robinhood Securities LLC and Robinhood Financial LLC.
Violations and Key Findings
The SEC investigation uncovered multiple regulatory lapses by Robinhood:
- Trading Activity Misreporting: Errors in Electronic Blue Sheets (EBS) submissions resulted in inaccurate or incomplete data for 11,849 requests, impacting 392 million transactions.
- Failure to Preserve Communications: Robinhood did not maintain electronic customer communications from 2020–2021.
- Suspicious Activity Reporting: Between January 2020 and March 2022, Robinhood delayed filing required suspicious activity reports.
- Short-Sale Regulation Violations: From December 2019 to May 2022, Robinhood failed to comply with Regulation SHO, which governs short-selling practices.
- Cybersecurity Lapses: In 2021, Robinhood failed to address a vulnerability that led to unauthorized access to millions of customers’ information.
- Identity Theft Protections: Measures to safeguard against identity theft were inadequate from April 2019 to July 2022.
Financial Penalties and Compliance
Robinhood Securities and Robinhood Financial agreed to a censure and will pay the following penalties:
- Robinhood Securities LLC: $33.5 million
- Robinhood Financial LLC: $11.5 million
Both fines must be paid by January 27, 2025.
Impact on Robinhood’s Stock and Business
The settlement had minimal impact on Robinhood’s stock price, with shares declining 1.22% on January 13 to $39.59 before rebounding 0.48% in after-hours trading.
While the SEC order did not clarify whether Robinhood’s cryptocurrency operations contributed to the violations, Robinhood’s crypto business has faced its own regulatory scrutiny. In September 2024, Robinhood’s crypto arm paid $3.9 million to settle claims in California related to crypto withdrawal restrictions between 2018 and 2022.
Despite regulatory challenges, Robinhood’s cryptocurrency segment has seen significant growth:
- Crypto Trading Volume: Increased 112% year-over-year in Q3 to $14.4 billion.
- Crypto Revenue: Jumped 165% year-over-year to $61 million.
- Assets Under Custody: Rose 32.3% from Q2 to $19.5 billion.
Robinhood has admitted to certain SEC findings and is taking steps to improve its regulatory compliance and operational practices. However, it neither admitted nor denied wrongdoing in some settlements, reflecting ongoing regulatory oversight of its activities.
