Robinhood has agreed to pay $45 million to settle various charges from the SEC related to its brokerage operations.
According to the SEC’s order, Robinhood Securities and Robinhood Financial were found to have failed in their duties to promptly investigate suspicious transactions and implement sufficient procedures for safeguarding customers against identity theft.
Additionally, the SEC highlighted a long-standing issue concerning a cybersecurity vulnerability that allowed for the illegal access of millions of remote access customer accounts. Other charges include the failure to maintain and preserve electronic communications, violating federal recordkeeping laws. The firms also did not adequately protect essential operational records, allowing for the potential deletion or modification of legally required documents.
Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, stated, “It is essential to the Commission’s broader efforts to protect investors and promote the integrity and fairness of our markets that broker-dealers satisfy their legal obligations when carrying out their various market functions.” He noted that the two Robinhood firms violated numerous significant regulatory requirements, such as inaccurately reporting trading activities, not complying with short sale rules, failing to submit timely suspicious activity reports, and not adequately safeguarding customer information.
Moreover, Robinhood Securities was found to have inaccurately provided trading data to the SEC and violated rules related to fractional share trading, which facilitated abusive short selling practices.
The company’s regulatory challenges are not over; in May of last year, it received a Wells notice from SEC staff, indicating a recommendation for enforcement action concerning its cryptocurrency business.