Robinhood fined by Vermont state regulator over trading outages

abdelaziz Fathi

Robinhood will pay roughly $1.1 million in penalties for its systemwide outages and options trading practices, the Vermont Department of Financial Regulation said.

The settlement regards Robinhood’s multiple trading outages in the spring of 2020, lack of due diligence before approving customers to place options trades and providing misleading information to customers about margin trading.

Robinhood Markets was ordered to pay a $640,000 regulatory fine. In addition, it will funnel $590,000 to Vermont’s General Fund and $50,000 to the Education Fund.

A group of Robinhood customers were pushing for a class-action lawsuit to sue the stock-buying app over the technical failures Robinhood experienced in March of 2020. The plaintiffs were actively building a case against Robinhood for their negligence.

Robinhood allegedly breached its contracts and fiduciary obligations to customers, flouted regulatory requirements and acted in a reckless, profit-driven manner. This had left traders unable to move money while stock markets surged on March 2, 2020.

Technical issues marred the commission-free investing app on many occasions last year, unnerving investors trying to access their accounts during the market rally.

At the time, Robinhood had customers with more than 10 million accounts, and a fair number of them were frustrated trying to figure out how they fared during a bullish trading session. Clients have complained about not having access to their accounts and having long wait times for customer service.

Robinhood’s CEO blamed the shutdown on volatile market conditions, record trading volume, and record new account requests, which caused stress on the company’s infrastructure.

Robinhood makes it harder for options traders to qualify

“That was an unacceptable thing to have the only way people can access their money be your platform and then when a lot of customers go to your account to access their money and they can’t access it and their money was losing value extraordinarily during those days of trading losses,” said DFR Commissioner Mike Pieciak.

The state regulator also noticed that at least 40 customers in Vermont complained to the watchdog or Robinhood form a series of disruptions on its brokerage app. The Vermont Department of Financial Regulation added that the no-fee app’s automated process for approving investor applications wasn’t thorough enough to choose which customers should have access to risky options and margin trading features.

Separately, Robinhood is facing multiple investigations into repeated outages of its trading platform, as well as failure to provide a swift resolution resulted in some investors losing money after being unable to access their accounts.

The probes were also extended to brokerage accounts that were compromised by an attack that gave hackers the ability to take over users’ trades and funds in 2020.

Robinhood also made multiple changes to its options trading products, part of the improvements the app promised to do after one of its customers died by suicide thinking he incurred losses of over $700,000. The app has introduced new measures that make it harder for options traders to qualify to support sophisticated products on its platform.

Read this next

Industry News

The B2Broker B2Core REST API Is Now Live

B2Broker has announced the release of its new REST API, which lets customers use B2Broker’s solutions and services for business purposes.

Executive Moves

CME Group taps Paul Woolman to lead Equity Index, Giovanni Vicioso to lead Crypto

“Our equity and cryptocurrency businesses have experienced tremendous growth in recent years, underpinned by strong customer adoption and continued innovation.”

Technology

Sumsub launches document-free KYC for users in India, Brazil, Nigeria and Indonesia

Sumsub has launched one click-KYC for users in India, Brazil, Nigeria and Indonesia in a move that allows businesses to instantly onboard over 2 billion users without requesting their ID documents.

Digital Assets

Cboe becomes first major global exchange operator on DeFi data platform, Pyth Network

“Our participation in the Pyth network will provide another avenue to broaden customer access to our data, and aligns with our strategy to deliver market data to investors around the globe based on how they want to consume their data, whether through direct connectivity methods, the cloud or the blockchain.”

Industry News

FINRA fines Barclays Capital $2 million for best execution failures for 5 years

FINRA has fined Barclays Capital $2 million for failing to comply with its best execution obligations in connection with its customers’ electronic equity orders between January 2014 and February 2019. 

Digital Assets

SETL helps SWIFT, CSDs and custodians develop common framework for tokenisation systems

London-based enterprise DLT and blockchain company SETL has delivered a pilot project for SWIFT which implemented a common framework linking tokenisation systems between central security depositories (CSDs) and global custodians.

Digital Assets

Crypto volumes hit CHF 87.1 million at Switzerland exchange

Switzerland’s principal exchange has experienced a rebound in trading activities for September 2022, with monthly volumes increasing by more than 20 percent MoM.

Digital Assets

Bitcoin Suisse Vault taps Polkadot governance features

Bitcoin Suisse has added support for Polkadot protocol governance on its proprietary, hyper-secure cold storage solution, the Bitcoin Suisse Vault.

Retail FX

Finalto sweetens offering for African traders with localized FX pairs

Finalto, the financial trading division of Gopher Investments, announced today that it has extended its offering with inclusion of a number of African Pairs to its trading platforms.

<