Robinhood Agrees to $45M Settlement After SEC Probe

Robinhood settles for $45M with SEC over cybersecurity, communication, and trading violations. Fines were imposed on both entities.

In a major move, Robinhood has reached a $45 million settlement with the US Securities and Exchange Commission (SEC) after an investigation. Robinhood was accused of violating more than 10 securities law provisions by the SEC. The combined penalty for Robinhood Securities LLC and Robinhood Financial LLC is included in the settlement.

Robinhood failed to meet several regulatory requirements, according to the SEC investigation. The failures included improper reporting of trading activity, failure to comply with short sale rules, and failure to submit timely suspicious activity reports. The second issue relates to elements surrounding how Robinhood maintained proper books, records, or safeguarded customer information.

A lack of investigation into suspicious transactions followed, which Robinhood did not perform from January 2020 to March 2022. It was due to this that filing of necessary reports was delayed. Moreover, throughout the period April 2019 to July 2022 Robinhood failed to install adequate policies against identity theft.

SEC Fines Robinhood for Failing to Address Cybersecurity Risks

Robinhood failed to address cybersecurity risks appropriate between June and November 2021. Millions of Robinhood customers had their sensitive information downloaded by a third party who accessed Robinhood’s systems.

The second problem was the poor communication in Robinhood. The company did not keep electronic communications, breaking federal securities laws. It worked for a long time and went wrong between 2020 and 2021, failing customer communication.

Additionally, the SEC found Robinhood Securities to have violated specific trading rules. For more than five years, Robinhood Securities failed to produce accurate securities trading information. According to the SEC’s order, Robinhood Securities also violated the regulatory framework concerning short-selling practices, known as Regulation SHO, from May 2019 to December 2023. One of these violations was failure to meet close out, order marking and locate requirements.

In addition, Robinhood agreed to be censured as part of the settlement. Robinhood Financial and Robinhood Securities will also each pay separate penalties. Robinhood Financial will pay $11.5 million while Robinhood Securities will pay $33.5 million. The company will also perform an internal audit and endeavor to reconcile the compliance issues pertaining to off channel communications.

Ultimately, this settlement highlights the importance of adhering to regulatory standards in the financial industry. It emphasizes compliance, especially in handling customer information and securities trading.