Robinhood has reached a settlement with the United States Securities and Exchange Commission for $45 million after its broker-dealer entities were found to have violated multiple securities laws. The SEC order, published on Jan. 13, outlined more than 10 violations committed by Robinhood Securities LLC and Robinhood Financial LLC between 2018 and April 2024.
The violations included failures in reporting suspicious activity, safeguarding customer information, and complying with anti-money laundering laws. For instance, Robinhood failed to promptly investigate and report suspicious activity from January 2020 to March 2022, and did not implement adequate identity theft protection policies between April 2019 and July 2022, exposing customers to potential fraud risks.
Cybersecurity vulnerabilities were also a concern, with Robinhood failing to address known risks related to remote system access between June and November 2021. This led to a third party gaining unauthorized access to sensitive user data. In addition, the company failed to maintain and preserve off-channel communications and customer communications between 2020 and 2021, violating federal securities laws.
Regulation SHO compliance was also an issue for Robinhood, as the company failed to adhere to the rules governing short-selling practices in its fractional share trading and stock lending programs from May 2019 to December 2023. Furthermore, errors in over 11,800 Electronic Blue Sheets submitted to the SEC over a five-year period led to inaccurate reporting of at least 392 million transactions by Robinhood Securities.
Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, emphasized the importance of broker-dealers meeting their legal obligations to ensure market integrity and fairness. Compliance is crucial for protecting investors and promoting the integrity of financial markets.
While the SEC order did not mention Robinhood’s crypto businesses, the company previously received a Wells notice from the SEC regarding its cryptocurrency listings, custody practices, and platform operations. The SEC currently has ongoing civil enforcement cases against prominent crypto firms like Binance, Coinbase, and Ripple Labs.
Overall, the settlement with the SEC highlights the importance of regulatory compliance for financial institutions like Robinhood. Upholding legal obligations is essential for maintaining market integrity and protecting investors in the ever-evolving landscape of finance and technology.