Robinhood has agreed to pay $45 million in civil penalties to settle several Securities and Exchange Commission charges, including that it failed to address vulnerabilities which led to a data breach and that it violated recordkeeping provisions by allowing off-channel communications.
The penalties were applied collectively to Robinhood Markets broker-dealer subsidiaries Robinhood Securities and Robinhood Financial, which the SEC also alleged failed to timely file suspicious activity reports from 2020 to 2022, failed to implement adequate safeguards to prevent customer identity theft from 2019 to 2022, failed to maintain brokerage data in a protected way, and failed to maintain some customer communications between 2020 and 2021.
Robinhood Securities will pay $33.5 million and Robinhood Financial will pay $11.5 million, the SEC said.
“It is essential to the Commission’s broader efforts to protect investors and promote the integrity and fairness of our markets that broker-dealers satisfy their legal obligations when carrying out their various market functions,” said Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, in a prepared statement.
“Today’s order finds that two Robinhood firms failed to observe a broad array of significant regulatory requirements, including failing to accurately report trading activity, comply with short sale rules, submit timely suspicious activity reports, maintain books and records, and safeguard customer information,” Wadhwa said.
Additionally, Robinhood Securities alone was charged with failing to provide complete and accurate securities trading information, known as blue sheet data, to the SEC; and that from 2019 to 2023 it failed to comply with a regulatory framework designed to address abusive short selling practices.
Robinhood Markets General Counsel Lucas Moskowitz said in an emailed statement that the firm is “pleased to resolve these matters” and that it's “well-positioned to continue leading the industry in developing the innovative products and services our customers want and need to participate in U.S. and global financial markets.”
Both Robinhood subsidiaries admitted “certain findings” and agreed to be censured, the SEC said; and both agreed to conduct an audit on off-channel communications compliance. Regulators have sought out and penalized financial firms under their watch for communicating outside of appropriate channels, often with WhatsApp, since 2021.
Bank of America has thus far been hit with the highest related penalty, owing regulators $225 million for such violations in 2022.
According to a Robinhood spokesperson, the firm has made significant improvements to comply with brokerage recordkeeping requirements including revising policies and procedures, implementing technological improvements, and increasing training.
Additionally, regarding Robinhood Securities’ blue sheet data failures, the spokesperson said the firm has corrected coding issues that caused many of the errors, updated its validation and review processes and reworked its related supervisory procedures “to ensure accurate and complete reporting.
