The Securities and Exchange Commission has fined Robinhood Financial for USD 65 million for deceiving customers about the company makes money from their trades. The stock trading app has agreed to pay the civil penalty without denying or admitting the findings of the commission. Commenting on the fine, a company lawyer said that the practices do not reflect Robinhood Financial today. The civil penalty comes just a day after a lawsuit against Robinhood was filed by regulators in Massachusetts. The lawsuit alleged that the company targeted inexperienced and young investors with flamboyant gimmicks on its app where it treated the business of stock investing like a game. The lawsuit also talks about the massive outage company’s app faced earlier this year.
The federal agencies said that the stock trading company only partially explained on its online FAQ page about how it made money during 2015 and 2018. The company did not mention details of its largest revenue source – trades. The commission in it order said that the company took a user’s stock order and then sold it to a larger trading firm that is responsible for trade execution. “The process has been termed as ‘payment for order flow,” the order stated. The federal regulator said that Robinhood did not mention anything about order flow rates even at the time when the company was rapidly growing.
The Silicon Valley start-up has raised more than USD 1 billion in funding this year. This helped the value company, which is eventually set to go public, to increase its valuation to USD 11.7 billion. One of the important selling points of the company was that it was commission-free. The finding of the SEC clearly states that inferior trade prices provided by the company cost customers USD 34.1 million. Last year, users of Robinhood were allowed to borrow an unlimited amount of money because of a glitch in the system.