The SEC has charged Robinhood with "misleading" investors on how it made money and also for failing to get the best price for customer orders.
The popular online trading firm has agreed to pay $65 million, while neither admitting nor denying wrongdoing.
"Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm,” said Stephanie Avakian, director of the SEC’s Enforcement Division. “Brokerage firms cannot mislead customers about order execution quality."
In a statement to FOX Business, Dan Gallagher, chief legal officer at Robinhood and a former SEC official, clarified the enforcement.
“The settlement relates to historical practices that do not reflect Robinhood today. We recognize 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 action comes just one day after Massachusetts securities regulators filed an administrative complaint against the company, accusing it of deploying “aggressive tactics to attract new, often inexperienced, investors” and acting “without regard for the best interests of its customers.”
In a statement to FOX Business, a Robinhood spokesperson disputed the allegations.
“We disagree with the allegations in the complaint by the Massachusetts Securities Division and intend to defend the company vigorously. Robinhood is a self-directed broker-dealer and we do not make investment recommendations. Over the past several months, we’ve worked diligently to ensure our systems scale and are available when people need them. We’ve also made significant improvements to our options offering, adding safeguards and enhanced educational materials. Millions of people have made their first investments through Robinhood, and we remain continuously focused on serving them.”
The slaps also come as Robinhood, according to reports, is laying the groundwork for an initial public offering that could value the platform around $20 billion, as reported by Reuters. The company declined to comment on the IPO to FOX Business.
Trading among individual investors surged during the pandemic, raising the profile of online brokers including Robinhood, Charles Schwab-Ameritrade, E*Trade, which is now owned by Morgan Stanley and Interactive Brokers.
|SCHW||THE CHARLES SCHWAB CORP.||67.95||-0.62||-0.90%|
|IBKR||INTERACTIVE BROKERS GROUP, INC.||61.86||-0.45||-0.72%|
It also raised concerns with SEC Chairman Jay Clayton, who told FOX Business over the summer: “I want to make sure our retail investors know there are risks involved in leverages of all types” he said.
Fox News' Greg Norman contributed to this report.