Why will Robinhood be $9m poorer with its referral program?

A U.S. federal judge has ordered Robinhood Financial LLC to pay $9 million in a lawsuit over its referral program.

The case involved a “refer a friend” promotion by an agent in Washington that allowed unsolicited text messages to be sent. The total settlement will be $9 million, including $2.2 million in attorney fees.

“Robinhood has agreed to pay $9,000,000 to establish a non-recourse Settlement Fund for the benefit of the Settlement Class Members who filed the claim. This is an excellent outcome for approximately 827,327 consumers.”

Filing with the court

U.S. District Court for the Western District of Washington Judge Barbara Rothstein accepted the plaintiff’s claim that the program violated state consumer protection laws.

The judge stated that he considered the terms of the settlement to be fair, reasonable and appropriate, given the complexity, cost and length of litigation and the risks involved in determining liability and damages.

What’s wrong with Robinhood’s referral program?

The referral program motivates existing customers to recommend the product to their friends and family. For a successful referral, the customer receives a reward such as bonus points, a promotional code for a discount, a free product, a gift or money.

Robinhood’s referral program allowed customers to compose and send messages to their contacts from their phones, inviting them to join the Robinhood platform.

The lawsuit, filed in 2021, said the referral program violated the Washington Commercial Email Act and the Consumer Protection Act. Terrell Marshall Law Group and Berger Montague filed a complaint against all users who received Robinhood referral program messages and resided in Washington state from August 2017 to February 2024. However, the lawsuit did not include those who agreed to receive text messages from Robinhood’s referral program.

Wells statement

Robinhood has received a Wells notice from the U.S. Securities and Exchange Commission (SEC). The department reportedly plans to sue the company for violating securities laws.

Such notifications alert companies to possible enforcement action while the recipient investigates the company’s activities. Previously, they have also come to the Coinbase platform, the decentralized exchange (DEX) Uniswap or the nonprofit organization Ethereum Foundation.

Robinhood Markets Director of Legal, Compliance and Corporate Affairs Dan Gallagher said the company was disappointed that the agency decided to go to court. Not all assets traded on the platform are securities and the broker is prepared to discuss the matter with the regulator.

“We believe the assets listed on our platform are not securities and look forward to meeting with the SEC to clarify how weak any case against Robinhood Crypto would be, both on the facts and in law.”

Dan Gallagher, Director of Legal, Compliance and Corporate Affairs, Robinhood Markets

The fact that the department sent a warning to Robinhood about a possible lawsuit became known in March 2023. The online brokerage said in its annual report that the allegations made in December 2022 were related to the listing of digital assets.

At the same time, in June 2023, the platform refused to support cryptocurrencies Solana (SOL), Cardano (ADA), and Polygon (MATIC) after the regulator equated them with securities in cases filed against Binance and Coinbase exchanges. It has not yet been reported what the lawsuit against Robinhood is about. The company said the broker had previously received subpoenas and was cooperating with the investigation.

Robinhood continues to grow despite problems

Earlier in July, Bloomberg reported, citing sources, that Robinhood Markets Inc. was considering offering cryptocurrency futures in the U.S. and Europe in the coming months.

Robinhood hopes to offer perpetual futures for Bitcoin (BTC) and other tokens in Europe using the cryptocurrency exchange’s licenses after its $200 million acquisition of Bitstamp Ltd. is completed next year, the company said. The company also wants to launch CME-based futures for Bitcoin and Ethereum (ETH) in the U.S.

Additionally, Robinhood announced the acquisition of investment and AI research platform Pluto Capital Inc. As part of the deal, Pluto founder and CEO Jacob Sansbury has joined the Robinhood team to accelerate the product roadmap and help integrate AI capabilities into the platform. Other details, such as the amount of the deal, were not disclosed.