Robinhood hit with $45m SEC settlement over securities violations

Robinhood agreed to a $45 million settlement with the United States Securities and Exchange Commission after its broker-dealer organizations were found to have violated multiple securities laws.

An SEC order made public on Jan. 13 found that Robinhood Securities LLC and Robinhood Financial LLC committed “between at least 2018 and April 2024” more than 10 violations of securities law provisions ranging from failures to report suspicious activity to protection of customer information, among others. claims. ”

According to the commission, “both firms accepted some of the findings in the order and agreed to be censured”; Robinhood Securities agreed to pay a $33.5 million penalty, and Robinhood Financial agreed to pay an $11.5 million penalty, bringing the total settlement to $45 million.

Robinhood’s violations

From January 2020 to March 2022, the company failed to promptly investigate and report suspicious activity, undermining its obligations under anti-money laundering laws. Additionally, the order stated that between April 2019 and July 2022, Robinhood failed to implement adequate identity theft protection policies and exposed customers to increased fraud risks.

Cybersecurity vulnerabilities have also plagued the platform. Specifically, 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 millions of users’ sensitive data.

Robinhood also failed to maintain and protect off-channel communications and certain customer communications between 2020 and 2021, violating federal securities laws.

Additionally, from May 2019 through December 2023, Robinhood failed to comply with Regulation SHO, which governs short selling practices in fractional share trading and stock lending programs.

The SEC decision also said both organizations violated many rules under the federal securities laws, including provisions designed to protect customer privacy and ensure accurate recordkeeping and reporting.

Robinhood Securities also acknowledged errors in more than 11,800 Electronic Blue Sheets filed with the SEC over a five-year period, resulting in at least 392 million transactions being misreported. EBS are official data requests used by regulators to monitor trading activity and investigate potential market abuses.

Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, emphasized in a statement the importance of broker-dealers meeting their legal obligations to protect market integrity and fairness, saying such compliance is “vital to the Commission’s broader efforts to protect and encourage investors ” he stated. integrity and fairness of financial markets.

Robinhood’s crypto businesses were not mentioned in the order or included in the scope of these violations; But that doesn’t mean the company is out of the water. Last year the brokerage received a Wells notice from the SEC.

SEC staff recommended enforcement action over Robinhood’s cryptocurrency listings, custody practices and platform operations, according to a regulatory filing at the time.

The commission currently has ongoing civil enforcement cases against several high-profile crypto firms, including Binance, Coinbase, and Ripple Labs.