As a seasoned financial analyst with extensive experience in the industry, I have closely followed Robinhood’s journey and the recent developments regarding their referral program and regulatory issues. The $9 million settlement over the unwanted text messages sent through their referral program is an important reminder of the responsibilities that come with running a financial services company.
A U.S. federal judge has mandated that Robinhood Financial LLC will shell out $9 million in compensation following a lawsuit concerning their referral program.
In this particular situation, a broker’s “refer-a-friend” incentive led to the sending of unsolicited text messages, which was found to violate Washington state laws. The settlement amount is set at $9 million, with $2.2 million earmarked for legal fees.
“Robinhood has reached a settlement agreement, committing to set up a non-reversible fund worth $9,000,000. This will benefit the over 827,000 consumers who submitted claims.”
Court filing
In the US District Court for the Western District of Washington, Judge Barbara Rothstein concurred with the plaintiff’s argument that the contested program was in violation of Washington state consumer protection statutes.
The judge found the settlement terms just, reasonable, and fitting based on the intricacy, expense, and duration of the legal dispute, along with the inherent uncertainties in determining responsibility and compensation.
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What’s wrong with Robinhood’s referral program?
Existing customers are encouraged to spread the word about our product by referring new clients through our referral program. In return, they receive incentives like bonus points, discount codes, free products, gifts, or cash rewards for every successful recommendation made.
Through Robinhood’s referral program, users were enabled to craft and dispatch invitations to their contacts directly from their mobile devices, encouraging them to sign up for the Robinhood investing platform.
In 2021, a lawsuit was initiated by Terrell Marshall Law Group and Berger Montague on behalf of all Washington state residents who received emails for Robinhood’s referral program between August 2017 and February 2024. The complaint alleged that the referral program breached the Washington Commercial Email Act and the Consumer Protection Act. Noteworthy, the lawsuit excluded those users who consented to receive text messages from the Robinhood referral program.
Wells notice
The SEC has given Robinhood a warning sign, known as a Wells notice, indicating that they are considering filing a lawsuit against the company for alleged violations of securities regulations.
ROBINHOOD TANKS 5% AFTER SEC ISSUED WELLS NOTICE RELATED TO U.S. CRYPTO BUSINESS$HOOD
— Radar🚨 (@RadarHits) May 6, 2024
As a crypto investor, I’ve come across notifications that warn companies about possible regulatory actions during their investigations into the targeted firms’ activities. Previously, these notices surfaced on platforms like Coinbase, the decentralized exchange Uniswap, and the Ethereum Foundation.
The Director of Legal, Compliance, and Corporate Affairs at Robinhood, Dan Gallagher, expressed disappointment over the Securities and Exchange Commission’s (SEC) decision to take legal action. Not all assets transacted on our platform qualify as securities, and we are open to engaging in dialogue with the regulatory authority on this matter.
“We firmly maintain that the cryptocurrencies traded on our platform do not classify as securities. We are eager to collaborate with the Securities and Exchange Commission (SEC) to clarify the ambiguity and strengthen our argument against any potential charges towards Robinhood Crypto, based on factual evidence and legal interpretations.”
Dan Gallagher, Robinhood Markets Director of Legal, Compliance, and Corporate Affairs
In March 2023, it came to light that the department had issued Robinhood a warning about potential legal action over the digital asset listings, which were the subject of claims made against the online broker in December 2022, as mentioned in their annual report.
In June 2023, the regulatory authorities filed lawsuits against Binance and Coinbase, leading the platform to stop accepting Solana (SOL), Cardano (ADA), and Polygon (MATIC) cryptocurrencies around the same time. The ongoing lawsuit against Robinhood has yet to be disclosed regarding its connection to these events. Previously, the broker had received subpoenas and collaborated with the investigation.
Robinhood continues to grow despite problems
In July, according to earlier reports from Bloomberg, using unnamed sources, Robinhood Markets Inc. was reportedly planning to introduce cryptocurrency futures in both the United States and Europe by the end of this year.
Next year, once the acquisition of Bitstamp Ltd. by Robinhood is finalized for $200 million, the firm intends to utilize Bitstamp’s licenses to provide perpetual Bitcoin (BTC) and other token futures in Europe. Additionally, Robinhood plans to introduce CME-based Bitcoin (BTC) and Ethereum (ETH) futures in the United States.
Robinhood also revealed that it has purchased Pluto Capital Inc., a company specializing in investment and artificial intelligence research. With this acquisition, Jacob Sansbury, founder and CEO of Pluto, will be joining Robinhood’s team. His expertise is expected to expedite the development of new products and incorporate advanced AI functionalities into the platform. The financial terms of the deal were not made public.
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2024-07-19 17:35