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Indiana will receive $200,000 as part of a multistate settlement agreement with an online platform built to offer trading of stocks and funds.
The settlement with Robinhood Financial LLC will pay up to $10.2 million in penalties for operational and technical failures that harmed Main Street investors, according to a news release from the Indiana Secretary of State’s Office.
The settlement stems from an investigation spearheaded by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas coordinated through the North American Securities Administrators Association regarding Robinhood’s operational failures with respect to the retail market.
The investigation that led to the settlement began after the Robinhood trading platform experienced outages in March 2020.
In addition, prior to March 2021, there were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping.
The order sets violations for negligent dissemination of inaccurate information to customers, failure to have a reasonably designed customer identification program, failure to supervise technology critical to providing customers with core broker-dealer services, failure to have a reasonably designed system for dealing with customer inquiries, failure to exercise due diligence before approving certain option accounts, and failure to report all customer complaints to FINRA and state securities regulators, as may be required.
Robinhood has neither admitted nor denied the findings.
Robinhood will provide access to a FINRA-ordered compliance implementation report to states included in the settlement. Robinhood retained an independent compliance consultant who made recommendations for remediation, which Robinhood has generally implemented.
“This multistate agreement represents states at their best — working together for the benefit of Main Street investors,” NASAA President Andrew Hartnett said in a news release. “Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies.”
A year after the settlement date, Robinhood will attest to Alabama, the lead state in the settlement, that it is in full compliance with the FINRA-ordered independent compliance consultant’s recommendations or has otherwise instituted measures that are more effective at addressing the recommendations.
“This agreement reflects the ongoing efforts by state securities regulators to protect investors, including Hoosiers to ensure that they are treated fairly by financial services firms,” Indiana Secretary of State Diego Morales said in a news release.
The Indiana Securities Division found no evidence of willful or fraudulent conduct by Robinhood, and that Robinhood fully cooperated with the investigation. Further, the settlement does not affect any individuals or class action suits against Robinhood.
The settlement funds will be distributed between the Securities Enforcement Fund and the State of Indiana General Fund.
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