Robinhood Pays $65 Million in Settlement with SEC
With the increasingly-popular FinTech app Robinhood allowing customers to buy and sell stocks without fees, how does the company make money? That question was at the heart of a Security and Exchange Commission complaint. As the New York Times reports, Robinhood has now agreed to pay a $65 million fine to settle charges brought by the SEC. However, in doing so, the startup did not admit to any wrongdoing.
The SEC accuses Robinhood of misleading customers about their policies and trade platform. Specifically, they say that it was not made clear to users that Robinhood profited from selling its customers’ trades to other firms to be executed, in a process known as payment-for-order-flow. In turn, it also suggests that Robinhood users ended up with disadvantageous trade pricing, with these losses reportedly totaling $34 million.
It’s important to note that the SEC’s complaint is in regards to Robinhood’s operations between 2015 and 2018. This was referenced in a statement from Robinhood’s Chief Legal Officer Dan Gallagher who said, “The settlement relates to historical practices that do not reflect Robinhood today. We recognize the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve Robinhood as we grow to meet our customers’ needs.”
These complaints aren’t the first time that Robinhood has faced criticism this year. Over the summer, the startup faced some tough questions following the tragic death of a 20-year-old trader who mistakenly believed he owed more than $700,000 due to the way his portfolio balance displayed in the app. This event later led Robinhood to announce a number of adjustments to their options trading platform including an expansion of their educational resources. Elsewhere, the company has also faced heat from customers due to multiple instances of downtime the app has endured in recent months.
Despite these setbacks, Robinhood has continued to raise tremendous amounts of money of venture capital firms. So far this year, the FinTech has seen more than $800 million in investments between a $600 million Series F ($280 million of which was announced in May, with the remaining $320 million tacked on in July) and a $200 million Series G. Of course, these funds came as the platform saw a surge of new users come aboard during what proved to be a volatile year for the markets.
Overall, while this settlement is sure to garner a few headlines, it seems as though it will only prove to be a small bump in the road for Robinhood. Although the company has taken a few lumps in the past couple of years, it’s also managed to completely change the brokerage landscape and brought a new generation of investors into the fold. Therefore, it probably wouldn’t be wise to count Robinhood out anytime soon.
Also published on Medium.