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Robinhood to pay $70M for 'systemic supervisory failures'
- colechristensen 5y ago"The penalty was the largest ever issued by the Financial Industry Regulatory Authority (FINRA), according to the agency."
- newfonewhodis 5y agoI'm glad RH got fined, but this is a reminder that FINRA hasn't meaningfully fined the likes of Goldman, Morgan Stanley, HSBC or any other large brokerage.
- frakkingcylons 5y agoAll of those are investment banks.
- newfonewhodis 5y ago...yes, and?
- tptacek 5y agoAnd they aren't a retail brokerage with customer service obligations to ordinary people. Their counterparties are sophisticated, which is a regulatory way of saying "mostly on their own here".
- deleted 5y ago[deleted]
- chews 5y agoAlso important to know FINRA kept the 57 million. They are the SRO but let’s be honest they are the enforcement arm of the SEC.... but the government does not get to keep the fines.
- ZoomerCretin 5y agoI was surprised to see that it was not related to their activities relating to the GameStop/short squeeze fiasco.
- nrmitchi 5y agoRobinhood is and has been manipulative and predatory for years. Arguing that Robinhood did illegal things "for the benefit of their banking partners" or whatever other conspiracy theory you're suggesting is just that, a conspiracy theory. Let Robinhood be punished for the terrible things they have actually done instead of pointing at provably-false boogeymen.
- MikeDelta 5y agoHe didn't say anything about a conspiracy. Brokers have a duty of care and I can imagine Finra investigating if they took good care of their clients during this period, no matter the reason behind it.
- nrmitchi 5y agoSuggesting that a group should be investigated for "their actions" without providing any specifics is straight out of the conspiracy-theory playbook. Any rebuttal is easily countered with "that's not the action I was talking about. I was referring to their other illegal actions." You're setting up a non-falsifiable argument, which is the basis of a conspiracy theory. You're throwing out non-specified accusations and expecting your non-specified accusations to be disproven.
- throwawaysea 5y agoI'm out of the loop on what Robinhood did, and the news articles on this fine seem to be a bit vague. What did they do that is manipulative and predatory?
- nrmitchi 5y agoI'm just going to go off the top of my head here. 1. They released a "checking account" that they claimed was FDIC and/or SPIC insured when it was not. (yes, they backed off of this one when they got caught). 2. They've gamified buying/selling stocks using addictive dark patterns (like confetti explosions). FOMO-inspiring push notifications are another example here. 3. They have such a terrible level of support for a product which involves people's real money. 4. They let people start trading options without any of the due-diligence typically performed. 5. They released an initial options product which was quite literally "Do you think this stock is going to go UP or DOWN?" 6. Their entire product is based on people having margin accounts that do not know that they have margin accounts. 7. Their Payment for Order Flow is (or at least was) significantly higher than industry standard. Overall, their business model is taking a variety of complex financial instruments and wrapping them up in lipstick to sell to people who overwhelmingly do not understand the thing they are actually buying (or selling). I'm sure I'm forgetting a couple but I'm also multi-tasking at the moment. Edit: I forgot about the "infinite money" "glitch", which was a situation explicitly called out in regulation as prohibited (regarding counting outstanding margin credit as assets when calculating margin credit)
- meepmorp 5y agoThis is in addition to $65 in October, for misleading customers: https://www.reuters.com/business/finance/robinhood-pay-65-mln-fine-settle-sec-charges-misleading-customers-2020-12-17/ https://www.reuters.com/business/finance/robinhood-pay-65-ml...
- ProAm 5y agoWith the number of fines this company has occurred in its short existence Im very surprised they are still allowed to be a brokerage of sorts and will be allowed to go public.
- atatatat 5y agoThis headline is the Feds mea culpa for allowing that..
- whoisjuan 5y agoI always find surprising that Robinhood was able to build such a large business with such mediocre customer support. I switched to Charles Schwab and just the fact that there's a 24/7 phone number compensates for the lack of simplicity. I used to think that I wanted the simplicity of something like Robinhood. But I have learned to appreciate the complexity of Schwab. The reality is that behind Robinhood's simplicity there's a lack of sophistication and process in their operation. I commend what they built, but Robinhoood it's too exposed to the cross winds of retail trading and regulatory scrutiny. I feel that by having my investments in Robinhood, I'm adding some sort of risk multiplier that has nothing to do with the nature of my investments. It has to do mainly with how amateur-ish their brokerage operation feels.
- AznHisoka 5y agoBeware that Robinhood also miscalculates wash sales, which they've admitted to me. I typically don't care about customer support, as I don't do a lot of trades, but messing up tax forms is a huge no-no for me.
- thebean11 5y agoHmm, mess them up in whose favor? Robinhood messing it up seems like plenty of plausible deniability to not pay a penalty if you get audited..
- AznHisoka 5y agoMess them up in the IRS' favor, and it was clearly a mistake, and something they've had to fix for me.
- dataflow 5y agoCould you elaborate on what scenarios it would get messed up in? I expect it would happen if you're working across multiple brokerages, but is there any other scenario? It'd be helpful for us to know and watch out for it.
- 5y ago
- underseacables 5y agoSuch a small amount, sure hope it doesn’t cause the CEO to lose sleep.
- beefman 5y agoOriginal source: https://www.finra.org/media-center/newsreleases/2021/finra-orders-record-financial-penalties-against-robinhood-financial https://www.finra.org/media-center/newsreleases/2021/finra-o... Yahoo! Finance: https://finance.yahoo.com/news/robinhood-hit-with-record-finra-fine-of-57-million-to-settle-past-issues-143447830.html https://finance.yahoo.com/news/robinhood-hit-with-record-fin... Archived version of Reuters story: https://archive.is/NxI0t https://archive.is/NxI0t
- rdiddly 5y agoThey screwed up, but did they deserve the "largest penalty ever?" Established brokerage houses have gotten away with worse and paid less. Sounds an awful lot like another true real-life example of the very same r/WSB David/Goliath narrative the "established" part of the industry wishes it could discredit.
- Vaslo 5y agoI have to say that I agree. I think a punishment and/or fine should have been implemented. But $70M? Where does that money go anyway?
- smeyer 5y ago>Where does that money go anyway? I believe that FINRA keeps its fines and uses it for operating expenses, which are also partially funded by annual fees paid by its members and maybe other funding sources.
- elliekelly 5y agoEgregious conduct is (and has been) punished by license revocation or revocation of FINRA membership. It may be the largest monetary fine ever levied but it certainly isn’t the harshest punishment.
- elihu 5y ago12.6 million goes to customers, according to the article. > Robinhood's resolution with FINRA includes $12.6 million in restitution to thousands of customers and a $57 million penalty, the largest in the regulator's history, and covers a range of issues dating back to September 2016, FINRA said in a statement.
- mym1990 5y agoIts so difficult to say what is going on behind closed doors when established brokerage houses get caught(or any brokerage). In many ways it makes perfect sense that an established firm is able to negotiate for more lenient penalties, much like an established lawyer might be able to negotiate for more lenient sentences.
- giantg2 5y agoA pittance
- kevmo 5y agolol, 70M. All of these companies always get fines that don't even surpass the amount of money they made off faulty practices. People need to start going to jail for gross consumer failures.
- vptr 5y agoIf you send everyone to jail, how are you gonna collect the fines next time lol :D
- kevmo 5y agoI am talking about the people at the top. They are making calculated bets with their criminality (and look, it keeps working out really well). Will we be able to replace imprisoned CEOs who knowingly and intentionally perpetrated crimes? I think so. Silicon Valley CEOs are much more replaceable than some would have you believe.
- MangoCoffee 5y agoRobinhood probably gonna be a meme stock on /r/wallstreetbets when it ipo
- atlgator 5y agoWSB wants revenge by shorting it. They really got burned in the whole GME/AMC fiasco when RH halted trading.
- seattle_spring 5y ago> They really got burned in the whole GME/AMC fiasco when RH halted trading. They probably inadvertently saved a lot of people from themselves.
- Black101 5y agoProbably not.
- oxymoran 5y ago“…and exposed them to excessively risky trading tools such as options” Oh FFS. That was actually one of positive things that Robinhood did. They could have had some better safeguards for the unlimited loss scenarios to be sure but to lament access to all options is disingenuous at best.
- wcchandler 5y agoAgreed. I signed up for Robinhood and Webull after Fidelity denied me level 2 access, twice.
- sitzkrieg 5y agohow many people do you know that signed up at RH to write covered calls? lol buncha clueless reddit people yoloing
- rychco 5y agoThat’s it?
- beambot 5y agoWhen the "fine" is minuscule relative to profits and the bulk of it goes to a private company / self-regulatory organization (FINRA: [1]), it might be more accurate to label this a "bribe" for plausible deniability... [1] https://en.wikipedia.org/wiki/Financial_Industry_Regulatory_Authority https://en.wikipedia.org/wiki/Financial_Industry_Regulatory_...
- asteroidbelt 5y agoIn 2020 RH revenue (not profits) was $682M, so $70M fine is definitely not "minuscule".
- z3ncyberpunk 5y agoNope, still pretty paultry.
- beambot 5y agoGross profits, not net. Their net profit is probably negative, like most growth stage pre-IPO or recently-IPO tech companies. They were looking at IPOing at a $30B valuation. The fine is 0.2% of their anticipated market cap.
- asteroidbelt 5y ago0.2% of cap also looks significant for the first offense. What do you think would be an appropriate fine?
- beambot 5y agoThis isn't the first offense. They were fined $65M in Dec 2020 for similar infractions [1]. Clearly that wasn't enough to deter bad behavior. I'm a fan of exponential backoff. Pick an exponent. 3x-10x the last infraction seems reasonable (assuming similar levels of harm to users). [1] https://www.cbsnews.com/news/robinhood-sec-fine-65-million/ https://www.cbsnews.com/news/robinhood-sec-fine-65-million/
- Taylor_OD 5y agoA drop in the bucket.
- jackson1442 5y agoWhile true, it'll definitely hurt RH more than they expected. They only set aside about $26M for this settlement.
- jb775 5y agoThe SEC is useless. $70M is 0.625% of the conservative value of Robinhood[1] as of a year ago. That means they have over 99.375% of value remaining to work with. How is this not simply treated as "cost of doing business" in the finance world? They should be putting execs in prison when the law is blatantly broken. Then they expect younger generations to blindly trust the finance system. Time is ripe for millennials to cash in their 401ks and find a new place to put it....where sticky hands can't touch it. [1] https://edition.cnn.com/2020/08/17/investing/robinhood-trading-app-valuation/index.html https://edition.cnn.com/2020/08/17/investing/robinhood-tradi...
- themodelplumber 5y agoPrison? Really? A lot of otherwise disadvantaged people have made life-changing money with RH. It offers education, research tools, and generally does a good job of being useful in supporting a proactive investing and trading habit. I would guess that the real cost here is the publicity and reputation hit, not the fine.
- therealdrag0 5y agoPlacing orders is not rocket science. I bought my first stock on etrade decades ago as a teenager from a lower class family. RH didn’t add much except a pretty UI and lubrication to make it more gamboling than it already was.
- themodelplumber 5y agoE-Trade, you mean the company that depicted a baby earning a stack of cash in a Superbowl ad? Good anecdote and I'm glad you were able to figure out how to buy your first stock, but even the gambling community cried foul on E-Trade when it was brand new. Robinhood's mobile app is known for its simple UI and improved charts over ET; it's much less cluttered in addition to being a good deal for taxable accounts + offering crypto derivatives.
- therealdrag0 5y ago
- cryptica 5y agoIt's so arbitrary. Now I know what it felt like to live during the dark ages. We have: - Presidents and CEOs instead of kings and queens. - Corporate shareholders instead of knights. - Scientists, economists, lobbyists and regulators instead of priests. - Employees instead of peasants. Massive hypocrisy all around. The difference now is that many peasants can see everything and understand everything that's going on even better than the king can.
- FridayoLeary 5y agoThere always has to be a ruling class according to Orwell. But that isn't a bad thing necessarily, and i'm sure that any peasant from any period would happily sell his left arm to enjoy the privileges we all enjoy. >Now I know what it felt like to live during the dark ages. really? >Massive hypocrisy all around. Hmm. (i'm not attacking you personally, i'm also a terrible hypocrite, but trying to put things into perspective)
- cryptica 5y ago>> i'm sure that any peasant from any period would happily sell his left arm to enjoy the privileges we all enjoy. Not sure about that. Who would hire people with such low level of education? They'd have a miserable time living in tiny, dark apartments in big cities filled with noises, air pollution, drugs, with only mind-numbingly boring, repetitive jobs available to them with everyone around them acting fake, fake relationships, nobody would want to date them, nobody would want to be friends with them, etc... They would think we have all gone insane... And they'd be right. They'd be begging to go back to simpler times. Modern times are only better for rich psychopaths who don't value genuine human relationships. It's worse for everyone else. I'm jealous of peasants from the middle ages. There were so few educated people back then. I suspect that very few people tried to better themselves; so if you did, you would quickly stand out. I bet it was far easier to feel a sense of fulfillment (I know my grandparents felt this way). Business was less competitive and, unlike today, everyone knew how to identify an intelligent person (teachers and books where hard to come by so you had to be very curious to become educated). Nowadays a lot of educated people have 0 curiosity (the education system has turned into a factory) and these people are destroying the sciences. People without curiosity see education merely as a tool to gain money and power and that's probably why we have such terrible tribalism today. Few educated people are interested in the truth these days. They prefer to use their knowledge to mislead and control people rather than to teach them and to learn from them.
- Marciplan 5y agoThis sounds like a lot but isn’t this just a tiny hiccup Robinhood had to get out of the way for their IPO?
- cwkoss 5y agoWith the number of people still mad at RH at how they handled gamestop, I'm excited to see what sort of market shenanigans wallstreetsbets folks engage in once they IPO. I predict massive put volume.
- hogFeast 5y agoThat hiring process, all that LeetCode, and they still couldn't work how to create a system that worked. Tragic.
- chunky1994 5y agoNote: This is not related to any activity relating to the gamestop/meme stock trading restrictions earlier this year, and was predominantly for their violations regarding proper trading controls and communications during 2018 to late 2020. This is a rather substantial fine in terms of those violations.
- FridayoLeary 5y agoI wonder if the gamestock saga isn't the reason this news has received the attention it did.
- alpb 5y agoNone of these fines (either meme stock fines or systemic failures/price improvement issues) are "substantial". It's not even a slap on the wrist for Robinhood, compared to the money they are making. They are probably clearing profits north of $70M in half a day.
- seattle_spring 5y ago> They are probably clearing profits north of $70M in half a day. Your assertion is that Robinhood is making $51.1 billion dollars a year in profit?
- lupire 5y agoWhat random number generator do they use to choose these fines?
- divs1210 5y agohttps://www.youtube.com/watch?v=dvYvQeNeq3A https://www.youtube.com/watch?v=dvYvQeNeq3A
- benreesman 5y agoThe PFOF premium that Robinhood commands is really fascinating. Last I checked market makers were paying like double for RH’s flow as opposed to Schwab or whatever. I’ve been doing work in crypto lately and it always creeps me how hard the exchanges push you to lever up. RH makes derivatives trading seem like free money. Citadel is willing to pay real money to be the counterparty. “HFT” gets a bad rap in spite of often providing a necessary service, and a lot of that is because of Michael Lewis’s dumbass book, but there is a dark side where firms round up unsophisticated people and sell them the opportunity to engage in complex derivatives transactions with sharky pros via dark patterns and sketchy growth hacking.