Online brokerage platform Robinhood has agreed to a $45 million settlement with the U.S. Securities and Exchange Commission (SEC) following allegations of multiple securities law violations. The settlement involves two of its broker-dealer subsidiaries, Robinhood Securities LLC and Robinhood Financial LLC, and stems from a broad range of regulatory compliance failures.
In a statement issued on January 13, the SEC detailed the violations, which included failures to report trading activity accurately, comply with short sale rules, submit timely suspicious activity reports, maintain proper books and records, and safeguard customer information. The settlement order stated that the Robinhood entities “admitted to certain findings” as part of the resolution.
Key Findings from the SEC Investigation
The SEC’s investigation highlighted significant lapses in Robinhood’s compliance practices between 2019 and 2022. Among the key findings:
- Misreporting Electronic Blue Sheets (EBS): Robinhood submitted at least 11,849 EBS reports containing inaccurate data or omissions, affecting the reporting of over 392 million transactions.
- Failure to Preserve Customer Communications: The company failed to maintain and preserve electronic communications from customers during 2020 and 2021.
- Delayed Suspicious Activity Reporting: Suspicious activity reports were not filed in a timely manner between January 2020 and March 2022.
- Lapses in Cybersecurity: A 2021 cybersecurity vulnerability led to unauthorized access to information related to millions of Robinhood customers.
- Non-Compliance with Regulation SHO: From December 2019 to May 2022, Robinhood failed to adhere to rules designed to curb abusive short-selling practices.
- Inadequate Identity Theft Protections: Sufficient safeguards were not in place between April 2019 and July 2022.
Financial Penalties and Deadlines
As part of the settlement, Robinhood Securities LLC agreed to pay a $33.5 million penalty, while Robinhood Financial LLC will pay $11.5 million. Both fines must be paid by January 27. In addition to the financial penalties, both entities were censured by the SEC.
Impact on Robinhood’s Stock and Crypto Business
Robinhood’s stock (NASDAQ: HOOD) showed minimal reaction to the settlement news. Shares fell 1.22% to $39.59 on January 13 but recovered 0.48% in after-hours trading, according to Google Finance data.
While the settlement primarily focused on Robinhood’s brokerage operations, its crypto business has also faced scrutiny. In September, Robinhood’s crypto unit agreed to a $3.9 million settlement with California regulators over allegations that it restricted customer crypto withdrawals between 2018 and 2022. Robinhood neither admitted nor denied wrongdoing in that case.
Despite regulatory challenges, Robinhood’s crypto operations have shown significant growth. In the third quarter, crypto trading volume surged 112% year-over-year to $14.4 billion, while revenue from crypto trading climbed 165% to $61 million. Crypto assets under custody also increased by 32.3% quarter-over-quarter, reaching $19.5 billion.
