Robinhood Settles With SEC For $45 Million In Civil Penalties

Robinhood Markets has agreed to pay $45 million to settle its cases filed by the US Securities and Exchange Commission (SEC). In a document shared by the agency, Robinhood Markets violated rules on blue sheet filing, identity theft, and suspicious activity reporting, including a 2021 data breach that exposed customers’ data.

Two brokers of Robinhood Markets – Robinhood Securities and Robinhood Financial – are the primary units responsible for accepting and executing trades. As such, the SEC ordered that both units would share in covering the penalties.

The $45 million settlement is the latest in the series of legal fees paid by the company as it struggled with its fast growth. Robinhood Markets was established in 2012 and became popular for its zero-commission trading, which attracted young traders and investors.

Robinhood Violated Several Regulations, Says SEC

In a January 13th statement, the SEC shared that the agency violated several rules and regulations. According to Sanjay Wadhwa, the agency’s acting enforcement director, Robinhood Markets failed to comply with several regulatory requirements, including accurate reporting of trading activities, compliance with short sale rules, and protection of customers’ data and information.

The SEC says that two Robinhood broker-dealers agreed to pay $45M in combined penalties to settle charges that they violated over 10 securities law provisions (@_danmangan / CNBC)https://t.co/dWl9YmL5Xmhttps://t.co/rabOpEr6Nfhttps://t.co/ZOzeer1FAj

— Techmeme (@Techmeme) January 13, 2025

Also, the agency reported that Robinhood Markets made at least 11,000 Electronic Blue Sheets or formal requests for information, including several omissions or false information. Robinhood did not contest some of the findings in the same SEC document.

Failure To Accurately Report Activities

According to the SEC, Robinhood also failed to report suspicious trading activities in a timely manner between January 2020 and March 2022. In addition to failed reporting, the investigation also cited Robinhood for failing to implement identity theft protection for its customers between April 2019 and July 2022.

Robinhood was also flagged for its non-compliance with the “Regulation SHO”, an SEC rule that aims to protect traders and investors from abusive short-selling practices. According to the SEC, the financial services company failed to protect its customers from December 2019 to May 2022 and didn’t adequately address the site’s vulnerabilities in 2021.

Robinhood’s lapse in judgment has led to the hacking of its system, which compromised the data of millions of its users.

Both Robinhood units did not deny some of the claims in the investigation and agreed to pay the fine. Robinhood Financial will pay $11.5 million in fines, and Robinhood Securities must cover its $33.5 million penalty, which must be settled by January 27th.

SEC’s announcement didn’t significantly impact Robinhood’s market performance. Last January 13th, the company’s share price dropped to $39.59, a decrease of 1.22%, before reclaiming 0.48% at the end of trading hours.

Robinhood Markets is associated with crypto. The platform offers cryptocurrency trading alongside traditional investment options like stocks, ETFs, and options. Robinhood Crypto, a subsidiary of Robinhood Markets, allows users to buy, sell, and hold various cryptocurrencies, such as Bitcoin, Ethereum, and Dogecoin.

Robinhood has been a popular choice among retail investors due to its user-friendly interface and commission-free trading model. The company has also expanded its crypto services, including features like wallets that enable users to transfer crypto in and out of the platform. This makes Robinhood a significant player in the cryptocurrency ecosystem, particularly for beginner and retail traders.

Featured image from Newsweek, chart from TradingView