Regulators have issued summons or sought testimony and information from the company and CEO Vladimir Tenev as part of an investigation into trading restrictions imposed during the mem-stock volatility a year ago.
Robinhood Markets still faces several legal and regulatory threats after the retail “meme stock” trading frenzy prompted brokerages to restrict trading in certain stocks, angering customers.
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That episode sparked multiple government investigations, sparked a flurry of private lawsuits by aggrieved clients and investors, and intensified regulatory scrutiny of Robinhood’s business model, which weighed on the company’s stock price.
“Robinhood operates in an industry that is highly regulated and subject to robust oversight,” Robinhood’s chief legal and corporate affairs officer Dan Gallagher said in a statement.
“We have built industry-leading legal and compliance teams to help ensure Robinhood remains the platform of choice for millions of investors,” he added.
The company has also claimed some recent victories in court. Here are the latest developments:
‘Meme stock’ investigation, lawsuits
Regulators have issued subpoenas or sought testimony and information from the company and CEO Vladimir Tenev as part of an investigation into brokerage trading restrictions imposed during the mem-stock volatility a year ago, Robinhood said in an update in July and again in October. disclosed in the filing.
Regulators include the US Attorney’s Office for the Northern District of California, the US Department of Justice, the US Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the New York Attorney General’s Office, among other state attorneys general. Congress and some state securities regulators, Robinhood said at the time.
Robinhood is also facing private lawsuits related to mem stock volatility and its core business practices, such as pay-to-order flow (PFOF), whereby retail brokers place orders to wholesale market makers in exchange for payment.
The company has had some success on that front. A federal judge on Thursday dismissed claims of investors’ negligence and breach of fiduciary duty.
The same Miami judge previously dismissed another lawsuit accusing Robinhood and other brokerages of collusion with market maker Citadel Securities to prevent “meme stocks” from rising, charges the companies denies. The plaintiff has returned the suit.
Another lawsuit is pending, accusing Robinhood of violating securities law amid meme stock frocks.
Other investigations, Legal risks
A FINRA arbiter this month said Robinhood owed less than $30,000 in damages to a user who sought compensation for alleged negligence, breach of contract and other issues related to the brokerage’s January 2021 trading ban Was. This was the first such successful claim, after others denied it. Jorge Altamirano, a Robinhood client’s attorney, said his firm has received “heavy access” from others and is currently investigating legal claims.
Robinhood is also being investigated by the New York State Department of Financial Services over money laundering and cyber security issues.
In April 2021, the California Attorney General’s office issued a subpoena seeking documents regarding Robinhood’s trading platform, business and operations, and the application of California’s commodity regulations to the platform, the October filing said.
The Massachusetts Securities Division (MSD) also sued Robinhood in December 2020, alleging unethical and dishonest conduct and failure to act in accordance with its duty, among other lapses. Robinhood has denied the charges and is fighting the lawsuit.
Both the SEC and FINRA have requested information from the firm regarding its “For You” facility and “other facilities that display a list of securities to clients”.
The attorney general of California and spokesmen for FINRA declined to comment. Other agencies did not respond to requests for comment. Robinhood, which has said it is cooperating with the investigation, declined to provide new details on them.
New Rules
Because of the mem stock saga, the SEC is investigating the business practices of commission-free brokers, specifically PFOF. Transaction-based revenue accounts for more than 70% of Robinhood’s revenue, the company said Thursday.
SEC Chairman Gary Gensler has questioned whether brokers are incentivized to encourage clients to trade more frequently to boost their profits and plans to ban PFOFs.
The agency is also investigating the use of features such as games to encourage trading and other digital engagement practices.
Robinhood warned that new regulation in these areas could require “significant changes to our business model”.
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