Robinhood, the online trading platform, has agreed to pay nearly $30 million in fines and compensation. The settlement resolves several investigations by the Financial Industry Regulatory Authority (FINRA). The regulator accused Robinhood of failing to properly supervise its platform and ignoring signs of potential wrongdoing.
FINRA oversees brokerage firms in the United States to protect investors and maintain market fairness. Robinhood will pay a total of $29.75 million, consisting of a $26 million civil fine and $3.75 million in restitution payments to affected customers.
Robinhood Ignored Key “Red Flags,” Says FINRA
According to FINRA, the exchange repeatedly failed to respond to warnings about possible misconduct on its trading platform. These oversights resulted in violations of rules designed to prevent money laundering, manipulation, and other abuses.
One major issue involved Robinhood’s clearing system—the system responsible for processing trades. Between March 2020 and January 2021, Robinhood faced processing delays due to high trading volume. During this period, the platform restricted trading in popular meme stocks such as GameStop (GME) and AMC Entertainment (AMC). FINRA said that the exchange did not adequately supervise or manage these delays, harming traders who relied on timely processing.
Anti-Money Laundering Controls Were Weak
Additionally, the platform also faced criticism for inadequate Anti-Money Laundering (AML) procedures. FINRA found that the exchange failed to detect or investigate suspicious transactions. The company did not report cases of potential market manipulation, unusual money transfers, or customer accounts hacked by outsiders.
Additionally, Robinhood Financial opened thousands of new accounts without adequately verifying customer identities. FINRA emphasized that proper identity checks are critical in preventing fraud and money laundering.
Robinhood’s problems extended to social media advertising as well. The company used paid social media influencers to promote its services but failed to supervise these posts properly. According to FINRA, some influencer posts made unrealistic promises or misled investors. Such content can violate financial industry standards that require balanced and fair communication to investors.
Customers Misled by Order Processing Practices
The restitution portion of the settlement addresses Robinhood’s mishandling of certain customer trades. The exchange converted market orders—trades meant to execute immediately—into limit orders, known as “collaring.” By doing this without clear disclosures, customers received inaccurate or incomplete information. The $3.75 million restitution will go directly to customers impacted by these practices.
Robinhood Does Not Admit Wrongdoing, Agrees to Settle
Robinhood Financial and Robinhood Securities accepted FINRA’s findings but did not formally admit or deny wrongdoing. Settlements like this allow companies to resolve regulatory investigations quickly without extended legal battles or public trials.
This settlement follows another case against Robinhood in January this year. At that time, Robinhood paid $45 million to resolve accusations by U.S. securities regulators. In that case, the company admitted it failed to maintain required records of customer communications.
