the examination in Robin Hood until U.S. Securities and Exchange Commission has come to a head – and the stock-trading platform has agreed to pay $65 million to settle claims it hasn’t done enough to educate clients about its dealings with high-speed trading firms.
The SEC reportedly filed charges on Thursday (December 17). Robin Hood misled clients about how it makes money and didn’t deliver the promised best possible execution of trades. Robinhood has neither admitted nor denied the SEC’s findings.
The company offers a brokerage app that is often preferred by novice investors. CNBC reported that the Silicon Valley startup has raised over $1 billion in funding this year, giving Robinhood a valuation of $11.7 billion.
“Between 2015 and late 2018, Robinhood made misleading statements and omissions in client communications (regarding) its largest source of revenue describing how it made money – namely payments from trading companies in exchange for Robinhood sending its client orders to those companies for execution , also known as ‘payment for order flow,'” read an SEC statement.
“One of Robinhood’s selling points to clients was that trading was ‘commission-free,’ but due in large part to unusually high payment for order flow rates, Robinhood clients’ orders were filled at prices inferior to other brokers’ prices.” added the explanation.
On Wednesday (December 16), Massachusetts securities regulators filed a complaint against Robinhood, alleging that the company has aggressively marketed inexperienced investors and failed to implement controls to protect them, in violation of state laws and regulations.
The complaint claims that Robinhood has fallen “far short of the fiduciary standard” passed this year, which requires broker-dealers to act in the best interests of their clients. The complaint came from the office of William Galvin, Massachusetts Secretary of State.
Robinhood contradicts the state’s allegations, a spokeswoman said in a statement The Wall Street Journal.
“In the past few months we have worked diligently to ensure [that] Our systems scale and are available when people need them,” she said. “We’ve also significantly improved our range of options by adding safeguards and improved training material.”