Robinhood trading app hit with $70M penalty for 'misleading' customers

Different bank notes from difference countries pinned to a wall
(Image credit: Getty, Javier Ghersi)

Robinhood, the retail trading platform at the centre of the GameStop meme stock saga, has been hit with a $70 million penalty by the Financial Industry Regulatory Authority, though for reasons unrelated to GameStop. FINRA has ordered Robinhood's owners to pay a fine of $57 million and $12.6 million plus interest in restitution to its customers for what it calls "systemic supervisory failures and significant harm".

The Robinhood trading app profited from the increased popularity of retail day trading during the Covid-19 pandemic and the associated rise of "meme stock" trading organized by communities of speculators like the WallStreetBets subreddit. Between March of last year and now it's gone from 13 million users to 31 million.

FINRA's press release described the penalty as the largest it's ever leveraged, and explained the size of the fine and restitution was arrived at after considering "the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the firm, millions of customers affected by the firm's systems outages in March 2020, and thousands of customers the firm approved to trade options even when it was not appropriate for the customers to do so."

Among those who received "false or misleading information" from Robinhood was Alex Kearns, who picked up day trading as a hobby during lockdown. Kearns killed himself after incorrectly reading a negative balance of $730,165 in his account. He actually had a positive balance of $16,000.

Robinhood subsequently published a blog post about "meeting our responsibilities to customers" that explained it was expanding its customer support and communication, as well as "correcting buying power displays, cash balances (including negative cash balances), historical performance figures, and customer communications regarding the risk of loss in debit spread transactions."

FINRA's statement also details Robinhood's use of bots to approve new accounts, which resulted in customers "who either did not satisfy the firm's eligibility criteria or whose accounts contained red flags" and "a series of outages and critical systems failures" that cost its users tens of thousands of dollars.

Jody Macgregor
Weekend/AU Editor

Jody's first computer was a Commodore 64, so he remembers having to use a code wheel to play Pool of Radiance. A former music journalist who interviewed everyone from Giorgio Moroder to Trent Reznor, Jody also co-hosted Australia's first radio show about videogames, Zed Games. He's written for Rock Paper Shotgun, The Big Issue, GamesRadar, Zam, Glixel, Five Out of Ten Magazine, and, whose cheques with the bunny logo made for fun conversations at the bank. Jody's first article for PC Gamer was about the audio of Alien Isolation, published in 2015, and since then he's written about why Silent Hill belongs on PC, why Recettear: An Item Shop's Tale is the best fantasy shopkeeper tycoon game, and how weird Lost Ark can get. Jody edited PC Gamer Indie from 2017 to 2018, and he eventually lived up to his promise to play every Warhammer videogame.