Robinhood Fined $45 Million for Multiple Securities Law Violations
The Securities and Exchange Commission (SEC) has imposed a combined penalty of $45 million on two Robinhood broker-dealers, Robinhood Securities LLC and Robinhood Financial LLC, for violating multiple securities law provisions related to their brokerage operations.
Failures in Reporting and Identity Theft Protections
The SEC found that the two Robinhood entities failed to report suspicious trading activities in a timely manner, neglected to implement adequate identity theft protections, and failed to address unauthorized access to their computer systems. These failures occurred between 2020 and 2021, putting customers’ sensitive information at risk.
Lapses in Record-Keeping and Customer Communications
The SEC also discovered that the two Robinhood entities had longstanding failures to maintain and preserve electronic communications, failed to retain copies of operational databases, and failed to maintain some customer communications as legally required. These lapses in record-keeping and customer communications undermine the integrity of the financial system.
Inaccurate Trading Information and Blue Sheet Data
Robinhood Securities alone failed to provide complete and accurate securities trading information, known as blue sheet data, to the SEC for over five years. This resulted in the misreporting of blue sheet data for at least 392 million transactions, making it difficult for the SEC to monitor and regulate the market.
Regulation SHO Violations
The SEC also found that Robinhood Securities failed to comply with Regulation SHO in connection with its stock lending and fractional share trading program from May 2019 through December 2023. Regulation SHO is designed to address abusive short-selling practices, and Robinhood’s failure to comply with it undermines the integrity of the market.
Consequences and Resolution
Sanjay Wadhwa, the acting director of the SEC’s Division of Enforcement, emphasized the importance of broker-dealers satisfying their legal obligations to protect investors and promote market integrity. Robinhood Markets General Counsel Lucas Moskowitz stated that the company is pleased to resolve these matters and is committed to continuing to innovate and develop products and services for its customers.
Industry Implications
This settlement serves as a reminder to broker-dealers of the importance of complying with securities laws and regulations. It also highlights the need for robust identity theft protections, accurate record-keeping, and timely reporting of suspicious trading activities to ensure the integrity of the financial system.
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