Report: Robinhood In Talks To Pay Financial Penalty

To settle probes into its options trading processes and the downtime that its equity trading app faced last year, Robinhood Markets Inc. is in discussions to pay a financial penalty, The Wall Street Journal reported, citing a securities document. The Financial Industry Regulatory Authority (FINRA), state watchdogs and the U.S. Securities and Exchange Commission (SEC) are examining the company’s behavior in areas such as how it “displays cash and buying power to customers and its options trading approval processes,” the firm said in a filing, according to the paper.

Robinhood Securities and Robinhood Financial, two subsidiaries, are in the process of working out a settlement with FINRA regarding the options trading procedures and the outages it has experienced, according to the paper. The attorney general and financial watchdog of New York, as well as other regulators, are also examining reported cases of entities taking over Robinhood user accounts without permission.

Robinhood has faced criticism over the way it deals with custom options trading. One 20-year-old student died by suicide in 2020 when he believed he was facing large trading losses on the platform.

The news comes as Robinhood encounters more legal challenges, as a judge has declined to throw out a suit alleging that clients lost money during outages in March of last year. U.S. District Judge James Donato said the case had merits to progress and that clients had a sufficiently firm allegation. However, he pushed for the attorneys for both sides to strike a deal. “This is an unusual case in the sense that, as the plaintiffs have acknowledged, Robinhood has pretty much said this is a problem,” Donato said. “There was ownership and apology, and that’s 80 percent of the battle in most cases.” The judge said the parties should locate a mediator to help begin negotiations to save financial resources and time.

Separately, leaders in the European Union said that the kind of commission-free share trading for retail investors provided by firms like Robinhood would not be allowed in the bloc. Officials there have been looking into such brokerage sites following recent controversies