The Securities and Exchange Commission (SEC) has charged the makers of Robinhood, a popular stock trading app, with ‘misleading customers about revenue sources and failing to satisfy the duty of best execution’.
As part of its settlement, Robinhood is required to pay a USD 65 million civil penalties, according to Engadget. At the beginning of 2020, the Wall Street Journal reported that Robinhood was under investigation for not disclosing payments it received from market makers to execute the service’s trades.
The SEC found the company had published ‘misleading statements and omissions in customer communications’ between 2015 and 2018 about how it made most of its money. It did not come from interest made by lending out investors’ cash, or the USD 5 monthly fee that comes with a Robinhood Gold membership — it was from those payments from market makers, the online publication added.
Furthermore, people who bought into Robinhood’s vision of no-commission trades were making less profit compared to people who traded with the company’s rivals. ‘The order finds that Robinhood provided inferior trade prices that in aggregate deprived customers of USD 34.1 million even after taking into account the savings from not paying a commission’, the SEC concludes.
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