Robinhood is about to face some serious legal heat as Massachusetts securities regulators prepare to file a complaint against the “wildly popular trading platform,” WSJ reports.
Why It Matters: Robinhood has exploded, especially during the pandemic, opening doors for the average person to get involved with investing. But Massachusetts is alleging “the company aggressively marketed to inexperienced investors and failed to implement controls to protect them.” As a result, investors were exposed to “‘unnecessary trading risks’ by ‘falling far short of the fiduciary standard’ adopted this year that requires broker-dealers to act in their clients’ best interest.”
- A 20-year-old took his own life in June after running up a negative $73,000 balance on Robinhood.
- State regulators claim Robinhood let one user with no prior investment experience make more than 12,000 trades in six months.
Robinhood pushed back at the accusations, instead citing how it has “opened up financial markets for a new generation of people who were previously excluded,” but said it remains committed to transparency and compliance.
- In less than a decade of business, Robinhood has grown to more than 13 million accounts.
But it’s also not the first time Robinhood has gotten in trouble. It paid a $1.25 million settlement to the Financial Industry Regulatory Authority last year on claims the company “didn’t take steps to ensure it was getting the best prices for customer orders.”
The Outlook: Massachusetts regulators have a history of taking a hard stance against financial companies, previously probing Charles Schwab Corp. and Fidelity Investments. The state is seeking to place an administrative fine on Robinhood and require the company to “to engage consultants to review its infrastructure in response to the platform outages and to enhance its policies for approving users for options trading.”