A multi-state settlement will require Robinhood to pay up to $10.2 million in penalties for operational and technical failures by the company, according to a Friday news release from Colorado Securities Commissioner Tung Chan.
This settlement came from an investigation spearheaded by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas.
“This settlement makes clear that Robinhood and every trading platform must take their customer care obligations seriously,” Chan said in the release.
The multi-state investigation was related to outages on the Robinhood platform in March 2020 — "a time when hundreds of thousands of investors were relying on the Robinhood app to make trades" — and deficiencies prior to March 2021. These weaknesses included the firm’s monitoring and reporting tools as well as insufficient customer service, according to the press release.
“Robinhood failed to serve its retail clients,” Chan said in a press release. “When customers had questions about their accounts, Robinhood responded with automated email and chats or significantly delayed responses.”
"Insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping," according to the release.
Violations included “negligent dissemination of inaccurate information to customers,” and several failures including points like a “a reasonably designed customer identification program” or “exercise due diligence before approving certain option accounts,” according to the press release.
A copy of the full order is available at the Commissioner’s website under “Search Enforcement Actions.”
Robinhood is now required to supervise customer support function and provide accurate disclosure to customers about its support capabilities. The company is also required to report customer service responsiveness to senior management regularly, according to the press release.
In a year from the settlement date, Robinhood will have to attest that it is “in full compliance with the FINRA-ordered independent compliance consultant’s recommendations or has otherwise instituted measures that are more effective at addressing the recommendations” to Alabama, the lead state on the investigation.
