Misleading customers, the US retail investment platform "Robin Hood" was fined $70 million

Reporter Cui Puyu

Robinhood, a popular U.S. retail investor platform, agreed to pay nearly $70 million to the Financial Industry Regulatory Authority (FINRA), and the two sides reached a settlement. The company was accused of "systemic regulatory errors" and suffered significant losses to millions of investors due to misleading or misinformation and system outages.

Of that, $12.6 million will be paid to thousands of customers as compensation; another $57 million will be fined, the highest fine ever issued by the Financial Industry Regulatory Authority. The Financial Industry Regulatory Authority is a congressionally mandated non-governmental entity that oversees hundreds of thousands of brokerage agencies across the United States.

The FBI's investigation found that millions of clients had received false or misleading information from Robin Hood over a variety of different issues, including how much money a client had in their platform account and whether they could trade on margin.

The Financial Industry Regulatory Authority said the inaccurate information caused more than $7 million in damages to customers, and Robin Hood needed to pay compensation to these affected customers.

Other allegations involved in the settlement include that Robin Hood should not approve thousands of users to trade high-risk options, and that insufficient measures were taken to prevent a system outage in March 2020, which adversely affected millions of users.

After the settlement was reached, Robin Hood spokesman Jacqueline Ramsay said the company had invested in improving platform services and was building a customer service team.

Founded in 2014, Robin Hood has attracted millions of users, many of them novice investors, through commission-free trading and easy-to-use mobile apps. But at the same time, the company has also come under heavy criticism several times over the past few years, most recently restricting investor trading in the "Game Station" incident earlier this year.

The company filed an initial public offering (IPO) filing with the U.S. Securities and Exchange Commission (SEC) in March. Settlement documents disclosed Wednesday show that Robin Hood currently has 31 million clients, 18 million of whom have funds on their accounts.

In terms of customer service, the Financial Industry Regulatory Authority's investigation noted that between 2018 and 2020, Robin Hood should have reported complaints from tens of thousands of customers to the agency, but it did not do so. In addition, the financial platform has repeatedly injured customers by inadvertently conveying false and misleading information since September 2016.

The FBI report also cites the tragic story of a client. Alex Kearns, 20, an investor on the Robin Hood platform, committed suicide last June after seeing a cash balance of minus $720,000 on his account. The report found that this figure was inaccurate, with Karnes's position at the time only half as shown on his account.

In addition, Robin Hood began offering options trading services in December 2017, but the Financial Industry Regulatory Authority said the platform "failed to conduct due diligence before approving clients to trade options," relying on algorithms rather than manually approving clients to make venture capital.

Finally, the regulator's report notes that between January 2008 and February 2021, Robin Hood failed to effectively oversee the technology it provided its core services, resulting in a series of outages and system failures that cost some retail investors tens of thousands of dollars.

This is not the first time Robin Hood has been "fined.". Last December, Robin Hood agreed to pay $65 million to the SEC to address allegations that it misled customers in terms of revenue streams.