Robinhood Pays $45M to Settle SEC Charges Over Legal Violations
Robinhood, the online brokerage giant, has agreed to pay $45 million to settle charges brought by the U.S. Securities and Exchange Commission (SEC).
The SEC found that Robinhood Securities LLC and Robinhood Financial LLC, two of the companyโs main broker-dealers, violated over 10 securities laws.
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The settlement is due to Robinhood not meeting several regulatory requirements including reporting trading activity improperly, not complying with short sale rules, delayed suspicious activity reports and not protecting customer data. The SECโs findings show big holes in Robinhoodโs operation between 2020 and 2022.
SEC Findings Against Robinhood Firms
The SECโs investigation found:
Failure to report trading activity properly: Robinhood didnโt follow key trading rules so transparency in their operation was compromised.
Inadequate cybersecurity: A 2021 breach allowed an unauthorized party to access millions of Robinhood customer data.
Failure to report suspicious activity: Between January 2020 and March 2022 the company delayed reporting suspicious activity, putting investors at risk.
Failure to follow Regulation SHO: This rule is designed to prevent abusive short selling and was not followed from December 2019 to May 2022.
Also, Robinhood admitted to 11,849 Electronic Blue Sheets (official SEC requests for information) being inaccurate, some with omissions or false information.
Settlement Details and Financial Impact
As part of the settlement, Robinhood Securities will pay $33.5 million and Robinhood Financial will pay $11.5 million. Both must be paid by January 27, 2025.
Despite the settlement, Robinhoodโs stock (HOOD) barely budged, down 1.22% on January 13, 2025 and up slightly in after hours. But the companyโs crypto division, already under regulatory scrutiny, saw a 112% increase in trading volume and 165% increase in revenue year over year as of Q3, $14.4 billion and $61 million respectively.
Key Takeaways
Robinhoodโs settlement with the SEC amounts to $45 million for failing to meet various regulatory standards.
SEC violations included improper reporting, cybersecurity lapses, and non-compliance with trading regulations.
Robinhoodโs stock price saw minimal impact, and its crypto business continues to grow despite past regulatory challenges.
The case underscores the increasing scrutiny online brokerages face and highlights the importance of compliance in todayโs regulatory landscape.
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