Robinhood has agreed to a $45 million settlement with the United States Securities and Exchange Commission after its broker-dealer entities were found to have violated multiple securities laws.
An SEC order made public on Jan. 13 claims that Robinhood Securities LLC and Robinhood Financial LLC committed over 10 violations of securities law provisions ranging from failures in reporting suspicious activity to safeguarding customer information, among others, “between at least 2018 and April 2024.”
According to the commission, “both firms admitted certain findings in the order and agreed to be censured,” with Robinhood Securities consenting to pay a $33.5 million penalty and Robinhood Financial agreeing to pay a $11.5 million penalty, bringing the total settlement to $45 million.
Robinhood’s violations
From January 2020 through March 2022, the company failed to promptly investigate and report suspicious activity, undermining its obligations under anti-money laundering laws. Additionally, between April 2019 and July 2022, Robinhood failed to implement adequate identity theft protection policies, exposing customers to heightened risks of fraud, the order stated.
Cybersecurity vulnerabilities also plagued the platform. Notably, between June and November 2021, Robinhood failed to address known risks related to remote system access, resulting in a third party gaining unauthorized access to sensitive data from millions of users.
Robinhood also failed to maintain and preserve off-channel communications and some 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 its fractional share trading and stock lending programs.
The SEC order further noted that both entities violated multiple rules under federal securities laws, including provisions designed to protect customer privacy and ensure accurate record-keeping and reporting.
Further, Robinhood Securities also admitted to errors in over 11,800 Electronic Blue Sheets submitted to the SEC over a five-year period, which led to inaccurate reporting of at least 392 million transactions. EBS are formal 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, stressed the importance of broker-dealers meeting their legal obligations to uphold market integrity and fairness in a statement, noting that such compliance is “essential to the Commission’s broader efforts to protect investors and promote the integrity and fairness,” of the financial markets.
Robinhood’s crypto businesses were not mentioned in the order or included in the scope of these violations; however, that doesn’t mean the company is out of the water. Last year, the brokerage firm received a Wells notice from the SEC.
According to a regulatory filing submitted at the time, the SEC’s staff recommended pursuing enforcement action over Robinhood’s cryptocurrency listings, custody practices, and platform operations.
The commission currently has ongoing civil enforcement cases against several high-profile crypto firms, including Binance, Coinbase, and Ripple Labs.
