Robinhood settles ‘gamification’ case with Massachusetts regulator for $7.5M

Cryptocurrency and stock trading app Robinhood first settled an enforcement action brought by the Massachusetts securities regulator in December 2020.

According to an announcement made by Massachusetts Commonwealth Secretary William Gavin on January 18, Robinhood agreed to pay a $7.5 million fine and target inexperienced investors for trading crypto and stocks. Galvin said in the original complaint that Robinhood marketed itself as “winnable games,” and proposed revoking the company's broker-dealer license in the state.

“This settlement resolves historical issues dating back to 2021 that do not reflect Robinhood today,” Lucas Moskowitz, Robinhood's deputy general counsel and head of government affairs, told Cointelegraph. “We are pleased to put this matter behind us and move forward with our commitment to providing market access to our Massachusetts customers.”

The settlement ends a three-year legal battle between the business forum and Massachusetts. Following the December 2020 complaint, Robinhood filed suit against Galvin's office to counter the state's claims the organization violated the law. After an appeal, the case returned to court in 2023.

In addition to the “gamification” allegations, the Massachusetts securities regulator ordered Robinhood to address “serious cybersecurity issues” as part of the settlement. The company rejected the premise that the app was “compromised” and said it had “taken a number of steps” to address cybersecurity concerns from 2021.

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“While Robinhood discontinued many of its gaming strategies after complaints were filed by the Securities and Exchange Commission, the agreement in this case states that, in the future, Robinhood will stop using any festive images associated with the frequency of trading, certain push notifications. Galvin's office described details and features similar to games of chance.” Robinhood should add disclosures to the list and engage an independent compliance consultant to review other digital engagement practices in use.”

The Financial Industry Regulatory Authority fined Robinhood up to $70 million in 2021 for causing “extensive and significant harm” to thousands of consumers. In April 2023, Robinhood reached a $10 million settlement with security regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas following allegations that the company failed customers through multiple service outages.

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