Online stock trading service Robinhood has agreed to pay a $65 million fine to resolve allegations that it misled customers about an order routing arrangement that cost traders millions of dollars, the US Securities and Exchange Commission (SEC) announced on Thursday.
The SEC charged the company with failing to disclose the "receipt of payments from trading firms for routing customer orders to them, and with failing to satisfy its duty to seek the best reasonably available terms to execute customer orders."
This failure caused clients to complete trades at prices that were less than optimal for them, to Robinhood’s benefit, the SEC claimed. Overall, customers netted losses of around $34.1 million between October 2016 and June 2019 – even after accounting for the savings gained from not paying a commission – while Robinhood falsely claimed on its website that its execution quality matched or beat that of its competitors, the SEC said.
“Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm," Stephanie Avakian, enforcement director at the SEC, said in a statement. “Brokerage firms cannot mislead customers about order execution quality.”
Robinhood settled the case without an admission of guilt and agreed to retain an independent consultant to review its policies and procedures involved in its customer communications, payment for order flow and best execution of customer orders.
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"The settlement relates to historical practices that do not reflect Robinhood today,” said Dan Gallagher, Robinhood’s chief legal officer. “We recognise the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve Robinhood as we grow to meet our customers’ needs.”
The settlement comes a day after a Massachusetts securities regulator accused Robinhood of using aggressive tactics to attract inexperienced investors and failing to prevent outages on its platform.
