Brokerage platform Robinhood (NASDAQ: HOOD) has agreed to pay a $10 million penalty for the network outages it suffered in March 2020, which investigators say “harmed main street investors.”
The three-year investigation was conducted by seven state securities regulators in California, Delaware, New Jersey, Texas, South Dakota, Alabama, and Colorado, operating under the North American Securities Administrators Association (NASAA) umbrella, pointing out Robinhood’s flaws in the wake of the outages.
According to the order, Robinhood was found guilty of negligently disseminating inaccurate information to customers and failing to “have a reasonably designed system for dealing with customer inquiries.” The investigations revealed that Robinhood did not disclose customer complaints to state regulators and shirked its responsibility to carry out due diligence on option accounts approval.
“Platforms such as Robinhood must comply with common-sense protections for investors and consumers as required by law,” said Commissioner Clothilde Hewlett from the California Department of Financial Protection and Innovation. “Today’s agreement reflects the ongoing efforts by state securities to protect investors and make sure that they are treated fairly by financial services firms.”
In 2020, Robinhood experienced a platform outage that left thousands of users unable to execute trades. The two-day outage triggered cascading losses for several investors while others lost the opportunity to make profits on trades, with users bemoaning the lack of proper customer care services at that time.
In the weeks that followed, Robinhood was hit by a barrage of lawsuits while investigators pored over the firm’s activities. One of the lawsuits was brought by the family of a 20-year-old who committed suicide over fears that he had lost $700,000 following the outages.
The digital currency trading platform was in the eye of the storm after it halted trading around GameStop stock and other red-hot stock in 2021, a move that stoked wide public criticism and another regulatory inquest.
Cleaning up its act
Since the catastrophic incidents of the previous years, Robinhood has made a valiant attempt to redeem itself in the face of macroeconomic uncertainties. The firm announced during its 2022 Q4 report that it increased net interest revenue while managing to reduce operating expenses following layoffs.
Robinhood’s head of government affairs, Lucas Moskowitz, confirmed that the firm is keen on moving on from the unsavory incidents of platform outages and has invested in 24/7 chat and phone support. The firm has beefed up its educational materials and has improved its technology offering, according to a disclosure by Moskowitz.
“We remain focused on continuing to break down barriers to the markets for those who were previously kept out,” said Moskowitz.
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