Robinhood agrees to pay $45m in penalties to SEC

New York NY USA-July 29, 2021 The Nasdaq stock exchange and other digital screens are decorated for the initial public offering of Robinhood, in Times Square in New York.
Editorial credit: rblfmr / Shutterstock.com

The Securities and Exchange Commission (SEC) has announced that two Robinhood firms have agreed to pay $45m in combined civil penalties.

Breaking down the penalties, Robinhood Securities paid a $33.5m penalty and Robinhood Financial agreed to pay $11.5m in fines. 

Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, commented: “It is essential to the Commission’s broader efforts to protect investors and promote the integrity and fairness of our markets that broker-dealers satisfy their legal obligations when carrying out their various market functions. 

According to the SEC, the charges are concerning several violations, which range from suspicious activity reporting to failure to maintain customer communications. In total, there are six violations committed by Robinhood. 

These include: 

  • Suspicious activity reporting from January 2020 through March 2022
  • Identity theft protection from April 2019 to July 2022
  • Unauthorised access to Robinhood systems from June 2021 through November 2021
  • Off-channel communications
  • Retention of brokerage data
  • Failure to maintain customer communications between 2020 and 2021

Additionally, the SEC found that Robinhood Securities alone committed a further two violations. It says that Robinhood Securities failed to provide complete and accurate securities trading information, known as blue sheet data, to the SEC. 

Also, in connection with its stock lending and fractional share trading programs, Robinhood Securities failed to comply with Regulation SHO. 

In addition to the aforementioned fines, both firms have agreed to conduct an internal audit in regard to off-channel communications compliance and Robinhood Securities stated that it would certify its remediation of the issues that caused the reg SHO violations. 

Wadhwa added: “Today’s order finds that two Robinhood firms failed to observe a broad array of significant regulatory requirements, including failing to accurately report trading activity, comply with short sale rules, submit timely suspicious activity reports, maintain books and records, and safeguard customer information.” 

Robinhood has recently found itself in the spotlight of the SEC more than it would like. Last May, the firm received a Wells Notice from the SEC, which is typically issued as a cautionary measure and serves as a notification to companies that the organisation has gathered adequate information to potentially initiate enforcement action.

Robinhood reacted to the news in May, writing: “Robinhood Crypto is here to stay and we’ll keep innovating, shipping products, and fighting for regulatory clarity for the good of the industry and our customers.”