The Securities and Exchange Commission (SEC) has announced that Robinhood Securities LLC and Robinhood Financial LLC will pay a combined $45 million in civil penalties to settle various charges related to their brokerage operations.
The charges stem from a series of regulatory failures by the two firms, including violations of reporting and recordkeeping requirements, cybersecurity failures, and other compliance issues.
SEC Cites Robinhood for Multiple Violations in Trading and Compliance
According to the SEC’s statement on January 13, Robinhood’s violations spanned several areas.
“Today’s order finds that two Robinhood firms failed to observe a broad array of significant regulatory requirements, including failing to accurately report trading activity, comply with short sale rules, submit timely suspicious activity reports, maintain books and records, and safeguard customer information,” SEC official Sanjay Wadhwa said.
Between January 2020 and March 2022, the firm failed to file timely suspicious activity reports. This resulted in delays in investigating suspicious transactions. Additionally, from April 2019 to July 2022, Robinhood did not implement adequate policies to protect customers from identity theft.
The SEC said a cybersecurity vulnerability exposed user data between June and November 2021, when a third-party hacker gained unauthorized access to information related to millions of users.
The SEC also found that Robinhood violated rules regarding maintaining electronic communications and safeguarding operational data. The firm failed to retain key communications with customers between 2020 and 2021. Robinhood apparently did not store important brokerage records as required by federal laws.
Robinhood was also cited for failing to provide accurate securities trading information for over five years, which is required for the SEC’s oversight of market activities.
In addition to these issues, the SEC found that Robinhood Securities violated Regulation SHO, which addresses short-selling practices. Between May 2019 and December 2023, Robinhood Securities failed to meet regulatory requirements related to close-outs, order-marking, and locating shares for short sales.
Both Robinhood Financial and Robinhood Securities have admitted to the SEC’s findings. The brokers have agreed to internal audits and remediation plans to address these problems.
Robinhood Securities will pay a $33.5 million penalty, while Robinhood Financial will pay $11.5 million. As part of the settlement, Robinhood has agreed to improve its compliance efforts.
Recently, Robinhood paid $3.5 million in fines for denying customers access to crypto holdings and misleading practices. The investigation was conducted by the California Department of Justice.
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