Robinhood expects to pay a $ 26.6 million FINRA fine


  • Robinhood is grappling with multiple regulatory investigations and expects to pay a financial regulator a minimum of $ 26.6 million in a potential settlement.
  • It’s not all doom and gloom for the company, which is preparing to go public: Robinhood is valued at $ 20 billion and has already added 6 million crypto users in 2021.

Robinhood, the popular stock trading app, announced on Friday that US regulators were preparing to investigate its trading restrictions on GameStop (GME) shares and others.

The company said in a filing with the U.S. Securities and Exchange Commission that it is cooperating at this time with investigations by various regulatory bodies, including the SEC, the Financial Industry Regulatory Authority (FINRA) and the Office of the New York Attorney General.

Decipher Robinhood has been contacted for further comment.

Settlement in progress

In the SEC filing, Robinhood also said that it is preparing to pay at least a potential $ 26.6 million settlement with FINRA, not because of GameStop’s restrictions, but because of the business disruptions in March 2020 and its trading policies of options around approval and display.

Robinhood, in his filing, said that he is “in discussions with FINRA staff regarding a possible negotiated resolution of certain FINRA matters, including the March 2020 outages and options trading,” and that he expects “any resolution, if reached, would involve charges for violations of FINRA rules, a fine, customer restitution, a censure and a compliance consultant. We have accumulated in our statement of financial position for the year ended December 31, 2020 of $ 26.6 million representing the lower end of the range of our loss probability. We cannot predict, however, whether these discussions will result in a resolution of these issues. “

From trade frenzy to regulatory frenzy

Robinhood’s options trading policies became particularly contentious when Alex Kearns, a 20-year-old trader, committed suicide last year after mistakenly believing that he had lost nearly $ 750,000 on an options bet made on Robinhood. He actually had a balance of $ 16,000, but was reportedly miscommunicated.

The app in January came under scrutiny once again when it stopped buying GameStop shares amid the investor-driven trading frenzy on social media. Grassroots investors had coordinated on Reddit to buy GameStop stock to boost prices, forcing hedge funds to buy even more.

As the frenzy unfolded, Robinhood quickly halted trading in GME and other stocks subject to similarly unusual lawsuit, including Nokia (NOKIA) and AMC Entertainment Holdings (AMC). Separately, it also restricted instant deposit purchases for cryptocurrencies.

The company defended the trade restriction: The extraordinary lawsuit raised its bills to clearinghouse companies, forcing them to make this decision, it said in an effort to justify the controversial move. “It was not because we wanted to prevent people from buying these shares,” the company said.

But none of these public statements did much to calm angry traders who questioned the app’s claim to “democratize commerce” as the move was deemed to be in the interest of Wall Street.

The SEC has vowed to protect traders, and now others have joined in regulatory efforts to scrutinize Robinhood.

In the meantime…

The regulatory headache comes at a particularly inopportune time for the company as it prepares to go public later this year, with a reported valuation of around $ 20 billion.

But the bad publicity is still publicity: Robinhood added more than 6 million new crypto clients in just the last two months.


The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.

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