NJ Joins Multi-state $10M Settlement Against Robinhood for Failing Investors

Today, Attorney General Matthew J. Platkin and the Division of Consumer Affairs’ Bureau of Securities announced a multi-state settlement with Robinhood Financial LLC, which will pay up to $10.2 million in penalties for operational and technical failures that negatively impacted investors.

The settlement is the result of an investigation led by the North American Securities Administrators Association (NASAA) and state securities regulators from Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas. The investigation focused on Robinhood's operational failures in the retail market.

The March 2020 platform outages were the catalyst for the investigation, as hundreds of thousands of investors depended on the Robinhood app for trading. The investigation also revealed deficiencies in Robinhood's review and approval process for options and margin accounts before March 2021, weaknesses in the firm's monitoring and reporting tools, and insufficient customer service and escalation protocols. These issues left some Robinhood users unable to execute trades as the value of certain stocks plummeted.

Attorney General Platkin stated, “These Main Street investors looking to invest in their future were failed by Robinhood. This settlement shows when they don’t take care of their customers we will step in to protect them.”

The Consent Order details the violations committed by Robinhood, including failure to have a reasonably designed customer identification program, failure to supervise technology crucial to providing core broker-dealer services, and failure to report all customer complaints to the Financial Regulatory Authority (FINRA) and state securities regulators, as required. Robinhood neither admits nor denies these findings.

As part of the settlement, Robinhood will grant settling states access to a FINRA-ordered compliance implementation report and has retained an independent compliance consultant to provide remediation recommendations.

Cari Fais, Acting Director of the Division of Consumer Affairs, said, “Robinhood benefitted from its reputation as a way for people with little experience to try their hand at investing in the stock market. Its customers deserved better than the operational failures that resulted in this settlement.”

The Bureau assessed Robinhood a $200,000 civil monetary penalty and has required the company to undertake various remedial actions to address ongoing customer service needs.

Acting Bureau Chief Amy Kopleton emphasized the importance of safeguarding customers' interests and establishing systems to meet their needs, stating, “Robinhood and other similar broker-dealer apps have quickly grown and introduced investing to those who do not have prior experience in the markets. Broker-dealers must safeguard their customers’ interests and establish systems to meet their customer service needs.”

The Bureau's investigation was managed by Supervising Investigator Rachel Glasgow. The Bureau aims to protect investors from investment fraud and regulate the securities industry in New Jersey. They encourage investors to "Check Before you Invest" by obtaining information on the registration status and disciplinary history of any financial professional doing business to or from New Jersey.

Investors can contact the Bureau toll-free within New Jersey at 1-866-I-Invest (1-866-446-8378) or from outside New Jersey at (973) 504-3600, or by visiting the Bureau's website at www.NJSecurities.gov. The Bureau also welcomes assistance, issues, or complaints from investors regarding New Jersey-based financial professionals or investments.

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