Robinhood App Faces Record High Penalties
US-based Robinhood Financial LLC, owners of the Robinhood trading app, have been blasted by the Financial Industry Regulation Authority (FINRA.) The watchdog authority handed out the biggest financial penalty in Wall Street History, over $70 million, declaring that Robinhood has all but ignored strict rules and regulations. Of the $70 million to be paid, $57 million is a fine, and $12.6 million is to be paid to thousands of harmed customers.
Head of Enforcement, Jessica Hopper, made a statement on the matter. She declared that any company that is an official member of FINRA, regardless of how that company presents itself to the public, is beholden to rules and regulations. She stressed that governing rules were in place to protect investors, and that those rules could not be forsaken, regardless of a company considering itself to be innovative.
FINRA pointed out numerous instances in which Robinhood had all but disregarded regulations, citing failure to acknowledge complaints, a serious lack of diligence, and misleading customers with false, or incomplete information.
On the same day as word of the penalties was announced, Charlie Munger, famed business partner of Warren Buffet, did not hold back on expressing his own thoughts on the matter. In a CNBC special Buffet referred to the trading app as nothing more than a disguised gambling operation, having no regard for the money of app users, and no concern for the potential impact on those that were being fed lies. He concluded that the operation was nothing but a sham.
The Final Word
Looking at FINRA’s ruling, there is much that Robinhood is responsible for, both directly and indirectly. One app user took his own life in June 2020, after having lost a fortune on a bad investment. His suicide note explicitly referred to his app account having been used to purchase securities with margin, even though he had not given his permission. Thousands of other customers reported the same issue, resulting in total losses of over $7 million. FINRA has ordered that this money be paid back.
The watchdog group also stressed that although the company had out rightly claimed to be demystifying the financial world, customers were often given misleading information, including not informing users that a transaction was risky, and could result in a serious loss.
What the future holds for the now disgraced trading app isn’t clear. But chances are the world has not heard the last of Robinhood.