Latest news about Bitcoin and all cryptocurrencies. Your daily crypto news habit.
Regulators said the trading app should pay restitution to users like the 20-year-old who committed suicide after an erroneous negative balance appeared in his account.
The U.S. Financial Industry Regulatory Authority is penalizing Robinhood to the tune of roughly $70 million based on the results of an investigation into the stock and cryptocurrency trading app.
In a Wednesday announcement, the Financial Industry Regulatory Authority, or FINRA, said it had ordered Robinhood to pay $57 million in fines to the regulatory body as well as provide roughly $12.6 million in restitution to certain customers. FINRA alleged the trading platform caused âwidespread and significant harmâ to thousands of users and exhibited âsystemic supervisory failuresâ starting as early as September 2016.
âThe fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhoodâs violations, including FINRAâs finding that Robinhood communicated false and misleading information to millions of its customers,â said the head of FINRAâs department of enforcement Jessica Hopper.
The false information to which FINRA referred includes allegations Robinhood misrepresented margin trades, usersâ cash holdings in the app accounts, the risk of loss in options transactions, how much buying power users had, and information regarding margin calls. According to the regulatory body, âRobinhood neither admitted nor denied the charges, but consented to the entry of FINRAâs findings.â
Regulators said the firm was responsible for paying $7 million in restitution to customers who reported seeing inaccurate negative cash balances in their accounts. The body referenced Alexander Kearns, a 20-year-old Robinhood user who committed suicide in June 2020 after an erroneous negative balance of more than $730,000 appeared in his account. In addition, FINRA ordered the trading platform to pay more than $5 million to users affected by Robinhoodâs outages between 2018 and 2020, alleging that many users had lost up to tens of thousands of dollars in trades the platform was unable to execute during significant market volatility.
Related: Crypto-friendly trading app Robinhood faces lawsuit from securities regulators
The penalties paid to FINRA directly seem to be based on Robinhoodâs company policies and apparent failure to provide a clear picture of market data for customers. The regulatory body said between January 2018 and December 2020 the trading platform failed to report thousands of user complaints to FINRA following all the aforementioned issues. In addition, Robinhoodâs process to approve customers for options trading relied on algorithms rather than âfirm principals.â FINRA said this method had resulted in the approval of thousands of users who did not meet the companyâs eligibility criteria or whose accounts should have otherwise been flagged.
The results of the FINRA investigation come as Robinhood is planning to move forward with an initial public offering, or IPO. However, the firm is currently under scrutiny from the U.S. Securities and Exchange Commission, reportedly resulting in the delay of the company going public. Robinhood initially planned to launch its IPO this month but has reportedly postponed the offering to July.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.