Lawsuits and legal interventions have become remarkably prevalent. Robinhood, a trading platform decided to fend off a lawsuit instead of prolonging it by deciding to pay off the designated fine. The platform had found itself drowning in troubled waters with the Securities and Exchange Commission [SEC] charged the trading application for duping customers and seeking extra money from its users.
Robinhood’s Tiff With The SEC
In an elaborate press release, the Securities and Exchange Commission of the United States called out and charged Robinhood Financial LLC with an array of accusations. This list included the submission of “misleading statements and omissions in customer communications” from 2015 all the way up to 2018. This entailed false assertions in the platform’s FAQ pages where it lied about its revenue sources.
Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit commented on Robinhood’s activities and said,
“Robinhood failed to seek to obtain the best reasonably available terms when executing customers’ orders, causing customers to lose tens of millions of dollars. Today’s action sends a clear message that the Commission will not allow brokers to ignore their obligations to customers.”
The SEC further alleged that the trading platform went on to deceive individuals by hoarding the “commission-free” trading option. While this seemed like an attractive deal to its customers, it was nothing but a mere honey pot as the trading firm charged higher prices for order flow. This was off-putting for many as the prices of other brokers were comparatively lesser. The statement further read,
“The order finds that Robinhood provided inferior trade prices that in aggregate deprived customers of $34.1 million even after taking into account the savings from not paying a commission. Robinhood made these false and misleading statements during the time in which it was growing rapidly.”
The trading application was quick enough to try and get out of trouble. Robinhood went on to agree to pay $65 million as a civil penalty. The platform refrained from accepting or denying the charges imposed by the SEC.
Dan Gallagher, Chief Legal Officer of Robinhood had asserted that the settlement relates to historical practices that do not reflect the platform today. While recognizing the responsibility that comes with having helped millions of investors make their first investments, the executive went on to say that the team was committed to continuing to evolve the trading platform as it grows to meet the needs of its customers. He also added,
“We are fully transparent in our communications with customers about our current revenue streams, have significantly improved our best execution processes, and have established relationships with additional market makers to improve execution quality”