Cryptocurrency and stock trading platform Robinhood will pay the sum of $10.2 million in penalty for operational and technical failures that harmed main street investors.
The settlement is coming following an investigation led by securities regulators from California, New Jersey, Delaware, Texas, Alabama, South Dakota, and Colorado, that stated Robinhood repeatedly failed to serve its clients, after outages locked millions out of trading in March 2020.
In March 2020, as investors were trading on the Robinhood platform, it suddenly went blank for the entire trading day, which left them enraged after missing out on trades.
Some clients took to social media after the outage, claiming that they planned to pull funds from the platform and several others claimed they lost as much as $100,000 as a result of the outages.
This led to affected traders filing a class-action lawsuit against the platform. Also, last year August, the New York Department of Financial Services announced a $30 million penalty on Robinhood’s crypto business arm for alleged anti-money laundering, cybersecurity, and consumer protection laws violations.
Meanwhile, the president of the North American Securities Administrators Association (NASAA), disclosed that Robinhood must take its customer care obligations seriously and correct deficiencies. The regulators also say Robinhood failed to supervise technology that was key to providing customers with core broker-dealer services and did not report all customer complaints to the Financial Industry Regulatory Authority and state regulators.
Investors King understands that following the outage on the trading platform, Robinhood offered credit to some clients and apologized for the outages. But in exchange for a voucher, Robinhood asked that they sign a document agreeing not to take legal action.
Meanwhile, reports revealed that a Florida lawyer filed a federal lawsuit on behalf of his son and other traders, which he claimed that Robinhood’s emails confused users and were part of a strategy to limit their legal exposure.
Robinhood has however disclosed that it has since improved its infrastructure and some of the core issues that caused the March downtime.