A day after a regulator in Massachusetts filed a complaint against Robinhood alleging the company has "aggressively marketed to inexperienced investors and failed to implement controls to protect them," one of the trading app's units has agreed to pay $65 million to settle Securities and Exchange Commission allegations that the broker failed to properly inform clients that it sold their stock orders to high-frequency traders and other financial firms.
The case involves disclosures from 2015 to late 2018, according to a Thursday SEC statement. The company said it is now fully transparent in its communications with customers about how it makes money.
“The settlement relates to historical practices that do not reflect Robinhood today,” said Dan Gallagher, the firm’s chief legal officer.
“We recognize the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve Robinhood as we grow to meet our customers’ needs.”
As the SEC’s order finds, one of Robinhood’s selling points to customers was that trading was “commission free,” but due in large part to its unusually high payment for order flow rates, Robinhood customers’ orders were executed at prices that were inferior to other brokers’ prices.
* * *
The Securities and Exchange Commission today charged Robinhood Financial LLC for repeated misstatements that failed to disclose the firm’s receipt of payments from trading firms for routing customer orders to them, and with failing to satisfy its duty to seek the best reasonably available terms to execute customer orders. Robinhood agreed to pay $65 million to settle...