Robinhood: Support or Exploitation of Inexperienced Investors?

As controversial as the legendary heroic outlaw, the homonymous company has been the subject of increasing attention.

Robinhood, the commission-free stock trading and investing app, may already be on your radar: they have purportedly democratized trading for first time investors — but have been accused of various missteps over the past years.

Less than a week ago, their settlement with FINRA, the Financial Industry Regulatory Authority, went public. For causing “widespread and significant harm” to its customers, Robinhood was saddled with an historic fine of $70M, the largest-ever FINRA penalty.

“This action sends a clear message — all FINRA member firms, regardless of their size or business model, must comply with the rules that govern the brokerage industry, rules which are designed to protect investors and the integrity of our markets. Compliance with these rules is not optional and cannot be sacrificed for the sake of innovation or a willingness to ‘break things’ and fix them later,” said Jessica Hopper, the Executive VP and Head of FINRA’s Department of Enforcement¹.

In their report, the Wall Street’s industry regulator claimed that the company had communicated false and misleading info to its customers over a number of periods since September 2016. The company had “failed to exercise due diligence before approving customers to place options trades” in December 2017, “failed to reasonably supervise the technology that it relied upon to provide core broker-dealer services” between January 2018 and February 2021, and finally, had “failed to report to FINRA tens of thousands of written customer complaints that it was required to report” from January 2018 to December 2020.

As a result of the significant losses caused, $12.6M of the $70M will be distributed to thousands of affected customers. Robinhood, who accepted FINRA’s findings, did it without admitting nor denying the charges. So the question at hand: is today’s Robinhood good or evil?

VERVE CAPITAL

Sources:

¹https://www.finra.org/media-center/newsreleases/2021/finra-orders-record-financial-penalties-against-robinhood-financial