On June 30 (local time), US free online stock trading application company Robinhood was fined more than $70 million.
According to foreign media such as the Financial Times (FT) and CNBC, FINRA ordered Robinhood to pay back $12.6 million with a fine of $57 million and interest.
The FINRA claimed that Robinhood’s negligence arose from customers failing to trade on time because of technical difficulties with its platform, which was volatile at the time.
Robinhood’s blocking of trades in Reddit stocks such as Game Stop in February, when Reddit stocks were on the rise, caused major losses for investors.
A Congress and Securities and Exchange Commission (SEC) investigation was subsequently ordered.
FINRA concluded that it was “inappropriate” for Robinhood to allow risky derivatives trading even for thousands of novice investors. The FINRA also explained that it provided customers with false or misleading information about the amount of money in their accounts, how much margin trading was left, as well as the risk of loss associated with derivatives trading.
FINRA cited the case of a Robinhood’s college student customer who killed himself last year after he believed he had lost $73,165 in margin trading.
Despite having $16,000 in his account, the college student mistakenly thought he had to pay off more than $730,000 because Robinhood failed to provide proper notice. In the event of a loss, Robinhood did not appropriately disclose that the execution was abandoned and only the option price was lost.
A FINRA complaint accused Robinhood of failing to maintain a regulatory compliant system throughout its more than five-year existence.
FINRA’s enforcement chief, Jessica Hopper, said: “Compliance with these regulations is not optional, nor should it be sacrificed through innovation or a desire to ‘deregulate’ and improve later.”
Amid the recent rapid growth of Robinhood, FINRA took action against them, attacking their IPO plans.
In the wake of the novel coronavirus infection (COVID-19) pandemic, the popularity of Robinhood has grown dramatically amid the enthusiasm of ant investors.
Subscribers skyrocketed amid the so-called meme week, which was a hot topic on Reddit and social media, where ant investors trade stock tips.
FINRA reports that Robinhood users have more than doubled from 13 million at the end of March last year to 31 million now.