Robinhood to Pay $45 Million to Settle SEC Charges

Robinhood agrees to pay $45M in penalties to settle SEC charges over violations, including cybersecurity issues, recordkeeping failures, and suspicious activity reporting.

Key Points:

• $45 Million Settlement: Robinhood will pay $45 million for SEC violations, including poor reporting of suspicious activity and cybersecurity lapses.
• Operational Violations: Robinhood faces penalties for recordkeeping failures, off-channel communications, and non-compliance with short-selling rules.

The U.S. Securities and Exchange Commission (SEC) has settled with broker-dealers Robinhood Securities LLC and Robinhood Financial LLC, collectively known as Robinhood, over various violations related to their brokerage operations. The companies have agreed to pay a combined total of $45 million in civil penalties to resolve the charges.

The SEC’s order highlights several areas of misconduct by Robinhood, including failures related to suspicious activity reporting, identity theft protection, cybersecurity vulnerabilities, recordkeeping, and more. From January 2020 through March 2022, Robinhood failed to promptly investigate suspicious transactions, leading to significant lapses in filing required suspicious activity reports. This failure could have exposed investors to heightened risks of financial crime.

Robinhood to Pay $45 Million to Settle SEC Charges

Additionally, the SEC identified deficiencies in Robinhood’s measures to protect customers from identity theft. Between April 2019 and July 2022, the firm did not implement sufficient policies or procedures, leaving customers vulnerable to fraudulent activities. The SEC also uncovered a cybersecurity breach between June and November 2021. Robinhood failed to address a known vulnerability that allowed a third-party attacker to access sensitive customer data, impacting millions of individuals who had trusted the platform with their personal information.

The SEC noted that Robinhood had long-standing issues maintaining and preserving electronic communications, violating federal securities laws. The firm’s failures in recordkeeping included not retaining necessary customer communications and brokerage data, leaving critical information at risk of deletion or modification. Robinhood’s misconduct also extended to its obligations under Regulation SHO, which governs short-selling practices. Between May 2019 and December 2023, Robinhood Securities violated rules concerning short sale close-out, order marking, and locating requirements.

In addition to the collective penalties, Robinhood Securities will pay a $33.5 million fine, while Robinhood Financial will contribute $11.5 million. The companies have also agreed to conduct internal audits and certifications to address these violations and enhance future compliance with regulatory standards.

Both companies admitted to the SEC’s findings and will be subject to ongoing scrutiny to ensure adherence to the legal requirements. The settlement underscores the increasing pressure on brokerage firms to uphold stringent standards in their operations, especially as they manage vast amounts of customer data and transactions in an ever-evolving financial landscape.

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