Following this announcement, the broker-dealers Robinhood Securities LLC and Robinhood Financial LLC (collectively, Robinhood) have agreed to pay USD 45 million in combined civil penalties in order to settle a range of SEC charges arising from their brokerage operations.
The order found that the two firms failed to observe a broad array of significant regulatory requirements, including the process of failing to accurately report trading activity, comply with short sale rules, as well as submit timely suspicious activity reports, maintain books and records, and safeguard client information.
Included in the violations made by Robinhood are suspicious activity reporting (from January 2020 through March 2022, Robinhood failed to timely investigate suspicious transactions, resulting in systematic failures to file suspicious activity reports), identity theft protection (from April 2019 to July 2022, the company failed to implement adequate policies and procedures designed to protect their customers from the risk of identity theft), and off-channel communications (Robinhood had also multiple longstanding failures to maintain and preserve electronic communications in violation of the recordkeeping provisions of the federal securities laws, as both firms admitted the findings in the order concerning their off-channel communications failures).
At the same time, the firm provided unauthorized access to Robinhood Systems (from June 2021 through November 2021, Robinhood failed to adequately address known risks posed by a cybersecurity vulnerability related to remote access to their systems), while also having trouble retention brokerage data (the company also failed to maintain copies of core operational databases in a manner that ensured that legally required records were protected from deletion or modification for the required length of time), as well as failure to maintain customer communications (Robinhood failed to maintain some of their communications with their brokerage customers as legally required between 2020 and 2021).
In addition, Robinhood Securities alone committed the following violations: fractional share trading stock lending, and electronic blue sheets.
At the same time, both firms admitted certain findings in the order and agreed to be censured. Additionally, they also agreed to conduct an internal audit concerning off-channel communications compliance, and Robinhood Securities agreed to certify its remediation of the deficiencies that caused the Reg SHO violations. Robinhood Securities agreed to pay a USD 33.5 million penalty and Robinhood Financial agreed to pay a USD 11.5 million penalty.
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