Robinhood to pay $45 million settlement for SEC violations

The Securities and Exchange Commission (SEC) has announced that Robinhood Securities LLC and Robinhood Financial LLC will pay a combined $45 million in civil penalties to settle various charges related to their brokerage operations.

The charges stem from a series of regulatory failures by the two firms, including violations of reporting and recordkeeping requirements, cybersecurity failures and other compliance failures.

The SEC has cited Robinhood for multiple violations of business and compliance

According to the SEC's Jan. 13 filing, Robinhood's violations spanned several areas.

“Today's order found that two Robinhood companies failed to comply with several regulatory requirements, including failure to properly report trades, comply with short selling laws, file timely suspicious reports, maintain books and records and protect customer information,” SEC official Sanjay Wadwa said.

Between January 2020 and March 2022, the company failed to submit timely suspicious reports. This has resulted in delays in investigating suspicious transactions. Additionally, from April 2019 to July 2022, Robinhood did not implement adequate policies to protect customers from identity theft.

The SEC said a cybersecurity vulnerability exposed user data between June and November 2021, when a third-party hacker gained unauthorized access to data linked to millions of users.

The SEC also alleged that Robinhood violated regulations regarding the protection of electronic communications and the protection of operational data. The firm failed to maintain key relationships with clients between 2020 and 2021. Robinhood does not maintain important brokerage records as required by federal laws.

Robinhood was also cited for failing to provide the SEC with accurate securities transaction data required to monitor market activity for more than five years.

In addition to these cases, the SEC also found that Robinhood Securities violated Regulation SHO regarding its short selling practices. Between May 2019 and December 2023, Robinhood Securities failed to meet regulatory requirements related to close exit, order marking and sourcing of stocks for short selling.

Both Robinhood Financial and Robinhood Securities acknowledged the SEC's findings. The brokers agreed to develop internal audits and improvement plans to address these issues.

Robinhood Securities will pay $33.5 million in fines, while Robinhood Financial will pay $11.5 million. As part of the settlement, Robinhood agreed to improve its compliance efforts.

Recently, Robinhood paid a $3.5 million fine for denying customers crypto holdings and misleading practices. The investigation was conducted by the California Department of Justice.