Robinhood outage probe to be settled up to $10.2 million

A multistate investigation into outages to the Robinhood Markets Inc. website that left customers unable to trade during market volatility sparked by the pandemic in March 2020 resulted in the company paying a penalty of up to $10.20 million.

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During an investigation conducted by state securities regulators, it was discovered that the brokerage firm based in Menlo Park, California had deficiencies in many aspects of its daily operation. The firm was pioneering free stock trades for retail customers and pioneered many other services. There were a number of issues that regulators found with Robinhood, among them a failure to exercise due diligence before approving options trading, failing to report complaints to a regulator, and failing to supervise technology critical to providing customers with core broker-dealer services.

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"It is clear that Robinhood has consistently failed to meet its obligations to its clients, but this settlement makes it clear that Robinhood needs to take its customer care obligations seriously and correct these deficiencies," Andrew Hartnett, Iowa's securities regulator and chairman of the North American Securities Administrators Association, said. There were no admissions or denials made by Robinhood regarding the findings of the regulators.

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After the pandemic fueled a boom in online trading and expanded the firm's user base, in March 2020, the company's platform went dark for an entire trading day. A series of lawsuits followed the outage, which left angry customers angry for not being able to attend a major rally.

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A total of eight states were party to this settlement, including Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas. 

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'We have resolved this matter with the states and are pleased to be able to put it behind us," said Lucas Moskowitz, Robinhood's deputy general counsel and head of government affairs, in a statement. "In the case of Robinhood, the settlement relates to past issues that Robinhood has since made a considerable effort to improve, including the launch of 24/7 chat and phone support, the expansion of our library of educational materials, and the strengthening of our technology supervision."

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The Financial Industry Regulatory Authority (FINRA) settled similar allegations made against Robinhood in 2021. Even so, regulators continue to be scrutinized closely. The Securities and Exchange Commission announced in February that it was investigating the firm's cryptocurrency business and is in the process of investigating it.