Robinhood Agrees Settlement Plans With FINRA, Pays $30M in Penalties

Robinhood, a popular online trading platform, has agreed to pay $29.75 million in penalties and restitution to resolve probes by the Financial Industry Regulatory Authority (FINRA).

The settlement includes a $26 million civil fine and $3.75 million in customer reimbursements for providing customers with inaccurate disclosures. The was through the practice of “collaring”; converting market orders to limit orders. FINRA cited multiple compliance failures, including inadequate oversight of trading systems, anti-money laundering regulation breaches, and misleading social media behavior.

Robinhood Suspicious Activity

In a released blog post on Friday, FINRA emphasized that Robinhood neglected to detect or investigate suspicious activities, including manipulative trades, unusual money transfers, and account takeovers by third-party hackers.

Additionally, the company opened thousands of accounts without properly verifying customer identities, violating FINRA’s Customer Identification Program requirements.

These oversights led to systemic failures in Robinhood’s Anti-Money Laundering programs with the platform unable to flag suspicious transactions, leaving investors vulnerable to fraud and exploitation.

Trading System Overload

FINRA also found that Robinhood failed to address critical delays in its trading processing system between March 2020 and January 2021. This period saw heightened retail trading activity, including the infamous “meme stock” surge involving GameStop (GME) and AMC Entertainment Holdings (AMC).

Despite clear red flags, the platform did not adequately respond to system strain caused by increasing demand. FINRA emphasized that the company’s failure to manage its clearing technology system directly impacted its ability to meet regulatory obligations.

The settlement also mentions Robinhood’s misuse of social media influencers to promote its services.

“Robinhood Financial failed to reasonably supervise and retain social media communications promoting the firm that were posted by paid social media influencers. Some of these communications included statements that were promissory or not fair and balanced, and thus misleading to investors,” the post reads.

History of Regulatory Challenges

The FINRA settlement follows a previous $45 million penalty Robinhood paid in January 2024 to settle charges with the U.S. Securities and Exchange Commission (SEC). The SEC accused Robinhood of over 10 securities law violations, including failures to preserve customer communications between 2020 and 2021.

As part of the terms of the settlement deal, Robinhood agreed to FINRA’s findings without admitting or denying the charges.