Robinhood Will Pay $85 Million to Settle Claim That It Duped Investors
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The bloom is off the rose for Robinhood’s self-styled image as a champion of the little guy. The stock brokerage has agreed to pay a $US65 ($85) million penalty to settle U.S. Securities and Exchange Commission charges that it misled customers with its claims of being a commission-free method of trading stocks. The state of Massachusetts has also filed a related complaint against Robinhood that is still working its way through the system.
The SEC on Thursday fined Robinhood $65million for misleading customers over how it makes its money
It was also charged with failing to deliver customers with the best execution of trades as they were promised
The SEC claimed that between 2015 and late 2018, the popular trading app made misleading statements and omissions in customer communications
Offering commission-free trading, the app s income instead relies on Wall Street firms paying to execute Robinhood customers trades
The SEC found that the app was routing orders to trading firms that then overcharged users to execute transactions
The practice meant Robinhood customers were overcharged by $34.1million
Robinhood case to test Massachusetts fiduciary rule
But an investor advocate praises the state for targeting conduct other than outright fraud
December 17, 2020 2 MINS
Massachusetts regulators took on a difficult case against Robinhood to debut the state’s strengthened investment advice standard for brokers, compliance lawyers said.
On Wednesday, Secretary of the Commonwealth William Galvin charged the rapidly growing online trading platform with violating the Massachusetts fiduciary rule that went into force in September. Under the regulation, brokers must make financial recommendations without regard to their own financial interests.
In its order, Massachusetts alleged that Robinhood targeted young people with little investment experience, used gamification strategies to entice them to make repeated trades, and failed to maintain the platform’s infrastructure, which led to frequent outages.
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Last Updated Dec 16, 2020 at 5:44 pm EDT
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