Updated: Jan 16
Yall favorite stock app has been fined 70 M's by the SEC and FINRA for misleading customers and system outages....
Remember when they froze accounts and no one was able to buy or sell GME? Turns out this was against the law, in addition to numerous other activities Robinhood engaged in.
I've summed up the different infractions below.....
Lied to investors about how they were making money
They claimed they made money from sending customers to the big banks to execute trades but this wasn't the case. They made most of their cash from executing trades at unusually high prices. This means that when EYE bought Apple stock through my Charles Schwab account (about a month ago), I got shares at around $128.50 each. While Robinhood users who bought share at the same exact time got these shares at around $128.95. This may seem small but this happened millions of times, costing users over 24 million dollars.
Mislead customers about trading on margin
The famous "options trading" that almost everyone uses on Robinhood was a HUGE slip up. The app said options trading is only available to its "Robinhood Gold members", but this wasn't the case. They allowed all of their customers to trade on margin. They even allowed customers who had the 'margin trading' option turned off... to still borrow margin.
Robinhood sent false margin calls to 84,100 customers, causing more than 25,000 of them to sell stocks when they didn't need to and thereby lose money.
** If you were affected by the outage Robinhood is offering a whooping $75 dollars if you agree not to sue them….. yeah bullshit LMFAO.
Failure to have a backup plans in case of outages
Everyone remembers not too long ago.. when GME and AMC were being pumped and Robinhood experienced an outage causing a restriction on thousands of trading accounts. The company sent false margin calls to 84,100 customers, causing more than 25,000 of them to sell stocks when they didn't need to and lose money.(Could be you)
Outrageous System Flaws
Robinhood did a terrible job at verifying its customer base. FINRA reports that 94% of accounts that had suspicious information were STILL opened. This amounts to thousands of accounts that could be opened with stolen social security number.
Is Robinhood in any real danger? No. This $70 million dollar fine is a slap on the wrist to them. They made over $522 million in the FIRST quarter of 2021.
With that being said, be very careful when using the app. I suggest having a second account with a verified broker such as Charles Schwab or Fidelity. Safe investing!