Montpelier, VT – Today the Vermont Department of Financial Regulation (DFR) announced a $640,000 settlement with Robinhood Financial LLC (Robinhood). The settlement includes a penalty of $590,000; Robinhood will also contribute $50,000 to the Vermont Financial Services Education and Victim Restitution Special Fund.
The settlement relates to outages of Robinhood’s online trading platform, including during significant stock market volatility in March 2020 due to the COVID-19 pandemic. Additionally, the settlement addresses Robinhood’s lack of supervision when approving option or margin trading customer accounts.
“Robinhood and other fintech platforms have broadened access to financial markets and introduced investing to many for the first time,” said DFR Commissioner Michael S. Pieciak, “Yet at the same time, fintech firms must ensure they can service their growing customer base and comply with our regulatory requirements that are designed to protect Vermonters’ hard-earned money. I am pleased that Robinhood has taken significant actions over the past couple of years to enhance its oversight and compliance and that we were able to reach a settlement.”
Robinhood is a Vermont-registered broker-dealer firm that offers commission-free, self-directed trading for retail investors with no account minimums, through its mobile application and website. Robinhood has experienced periods of rapid customer growth, for example, 30% of the 18,500 Vermonters who were customers at the time of the outages were acquired during the six preceding months.
In March 2020, the company’s website and mobile application experienced significant outages, preventing customers from accessing their accounts during a time of historic market volatility. Customers could not enter, modify, or cancel investment orders. Additionally, Robinhood did not provide live, telephone customer service support. The outages meant that certain Vermont customers were unable to trade in their accounts during two of the largest daily point gains and losses in the Dow Jones Industrial Average in history.
At least 40 Vermont customers contacted Robinhood and/or the Department during and in response to the outages concerning their inability to trade, many expressing extreme frustration with the lack of market access during historic market volatility.
The settlement also reflects the Department’s finding that Robinhood’s wholly automated process was inadequate to determine which investors should be approved for high level option and margin trading. Option and margin accounts present increased financial risk and should be reserved for experienced traders. Applicants for margin- and options-enabled accounts were required to answer questions about their financial situation and experience. Their answers and user profile were then autonomously compared to the company’s minimum requirements. Much of the self-reported information was not subject to verification and rejected applicants could reapply immediately and be accepted by changing their answers.
Robinhood will be required to evaluate investors’ suitability more closely for options and margin trading and ensure the accuracy of information provided by all approved applicants who were previously denied. 809 Vermont customers were approved for options trading and 581 Vermont customers were approved for margin trading.
Commissioner Pieciak would like to thank assistant general counsel Jennifer Rood for her efforts in settling this matter. DFR encourages Vermonters to talk to their financial professionals if they have any questions about their investments. Always verify your financial professional is registered at https://dfr.vermont.gov/consumers/verify-license, FINRA Broker Check.
If you have questions or concerns your investments or financial professional, please contact DFR at 833-DFR-HOTLINE or firstname.lastname@example.org.
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