In a significant settlement, Robinhood has agreed to pay $45 million to the U.S. Securities and Exchange Commission (SEC) to resolve allegations of violating multiple securities laws. The SEC’s order found that Robinhood Securities LLC and Robinhood Financial LLC had breached over 10 regulatory provisions, spanning a variety of compliance issues. As part of the settlement, Robinhood Securities will pay a penalty of $33.5 million, while Robinhood Financial will contribute $11.5 million. Both payments are due by January 27, 2025.
The SEC’s findings highlight a series of deficiencies in Robinhood’s internal processes, including failures in reporting trading activity accurately, adhering to short sale regulations, and submitting timely suspicious activity reports. Additionally, the SEC noted that Robinhood’s entities did not maintain proper books and records, nor did they adequately safeguard customer information, all of which are essential for ensuring market integrity and customer protection.
A Closer Look at the Violations
The SEC’s investigation, which examined Robinhood’s activities from 2020 to 2021, uncovered a range of serious compliance failures. One of the most notable violations was Robinhood’s failure to preserve electronic communications between the company and its customers, a breach of the regulatory requirement to maintain communication records. This failure made it difficult to ensure the transparency and accountability of Robinhood’s business practices during that period.
Furthermore, the SEC revealed that Robinhood submitted at least 11,849 inaccurate or incomplete Electronic Blue Sheets (EBS). These forms are required by the SEC to track trading activity and provide transparency into the market. However, the inaccuracies in these submissions affected the reporting of at least 392 million transactions, undermining the accuracy of market data and regulatory oversight.
The settlement is a clear signal from the SEC that it is committed to holding financial institutions accountable for lapses in compliance, particularly when it comes to transparency, customer protection, and the integrity of market reporting.
The Financial Penalties
As part of the settlement, Robinhood Securities will pay $33.5 million, while Robinhood Financial will contribute $11.5 million. The total $45 million penalty is among the largest paid by the company to resolve regulatory issues. These penalties reflect the severity of the violations and Robinhood’s failure to meet regulatory obligations in multiple areas, ranging from data security to trade reporting.
The payment is due by January 27, 2025, and will be part of Robinhood’s efforts to address these deficiencies and restore its standing with the SEC. Although the settlement resolves these particular allegations, Robinhood will still need to undertake significant efforts to enhance its compliance systems, protect customer data, and ensure that it meets the rigorous standards set by the SEC.
The settlement serves as a stark reminder for brokerage firms, particularly those operating in the fast-evolving trading sector, about the importance of maintaining strict compliance with securities laws. While Robinhood has made significant strides in building a user-friendly trading platform that appeals to younger and less experienced investors, the company now faces increased scrutiny on its operations.