Robinhood hit with $45m SEC settlement over securities violations

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Robinhood has reached a $45 million settlement with the U.S. Securities and Exchange Commission, following allegations that their brokerage operations broke several securities regulations.

A recent SEC order, disclosed on January 13th, alleges that Robinhood Securities LLC and Robinhood Financial LLC breached more than ten provisions of securities laws, including lapses in reporting suspicious activities, safeguarding client data, and other offenses. These transgressions are said to have occurred from at least 2018 up until April 2024.

The commission stated that “both companies acknowledged certain findings in the ruling and consented to be reprimanded.” Robinhood Securities agreed to pay a fine of $33.5 million, while Robinhood Financial agreed to pay $11.5 million. This brings the total amount paid in settlements to $45 million.

Robinhood’s violations

Between January 2020 and March 2022, the company neglected to promptly examine and disclose suspicious behavior as required by anti-money laundering regulations, thereby breaching its responsibilities. Furthermore, from April 2019 to July 2022, Robinhood failed to establish robust identity theft protection measures, leaving customers vulnerable to increased fraud risks, according to the order.

The platform was likewise beset by cybersecurity issues. Particularly, during the period from June to November 2021, Robinhood neglected to handle recognized risks associated with remote system access, consequently enabling an unauthorized third party to breach and access sensitive data from millions of users’ accounts.

During the period from 2020 to 2021, Robinhood did not effectively manage or safeguard their off-platform conversations and certain client communications, leading to a breach of federal securities regulations.

As a crypto investor looking back, I recall that from May 2019 until December 2023, my brokerage platform, Robinhood, neglected to adhere to Regulation SHO, a set of rules governing short-selling practices. This oversight pertained to their fractional share trading and stock lending programs.

The SEC order also pointed out that both parties breached several regulations under the U.S. securities laws, such as those intended to safeguard client privacy and maintain precise record management and reporting.

Additionally, Robinhood Securities acknowledged mistakes in approximately 11,800 Electronic Blue Sheet submissions to the SEC over a five-year span, resulting in incorrect reporting of around 392 million transactions. EBS are formal data requests utilized by regulators to track trading activity and investigate potential market misconduct.

Sanjay Wadhwa, temporarily leading the SEC’s Enforcement Division, emphasized that broker-dealers should fulfill their legal responsibilities in maintaining market honesty and fairness. He pointed out that this adherence is crucial for the Commission’s mission to safeguard investors and sustain the integrity and fairness of financial markets.

Although Robinhood’s cryptocurrency operations weren’t implicated in the recent violations, it doesn’t mean they’re completely off the hook. In fact, last year, the company was issued a Wells Notice by the Securities and Exchange Commission (SEC).

Based on a report filed back then, it was suggested by the Securities and Exchange Commission’s team that they should take legal action against Robinhood regarding their cryptocurrency offerings, safekeeping procedures, and overall platform management.

As a crypto investor, I’ve been keeping an eye on the developments regarding some well-known cryptocurrency companies, such as Binance, Coinbase, and Ripple Labs. It appears that these firms are currently under investigation by regulatory bodies for ongoing civil cases.

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2025-01-14 10:57