Robinhood, the zero-fee trading platform that rocketed to outer space as the COVID-19 pandemic unleashed a stock market craze, has now been grounded by financial regulators.
On Wednesday, the Financial Industry Regulatory Authority ordered the company to pay $70 million to settle an investigation that alleged a series of failings, spanning service outages to offering false information to customers. The penalty is the largest ever issued by the group, and includes a $57 million fine and $12.6 million in restitution to those who experienced “significant harm.”
Robinhood enjoyed massive growth in the past year, welcoming millions of new customers as it surfed a wave of social media popularity amid the meme-stock investing fad (see: GameStop, AMC). However, according to FINRA, the firm violated its supervisory duties to those customers by purveying misleading information about options like margin buying, and approving thousands of users for risky bets that they would not typically be cleared for. The platform also suffered multiple outages during the early days of the pandemic in March 2020, a high-stakes time when millions were locked out of trading amid the fastest-moving market in recent history.