Popular trading app, Robinhood, has settled a case with the Securities and Exchange Commission (SEC), after it agreed to pay $65 million. According to the SEC, Robinhood deliberately misled its customers about its sources of revenue.
The SEC also says that Robinhood made customers lose tens of millions of dollars because it did not use the best options available when executing its customers’ orders. According to a press release:
“…between 2015 and late 2018, Robinhood made misleading statements and omissions in customer communications, including in FAQ pages on its website, about its largest revenue source when describing how it made money – namely, payments from trading firms in exchange for Robinhood sending its customer orders to those firms for execution, also known as “payment for order flow.”
Speaking in the press release, the Director of the SEC’s San Francisco Regional Office, Erin E. Schneider, said that there are a number of new companies currently using the power of technology to provide options for people who need to invest their money. However, Schneider also notes that “innovation does not negate responsibility under the federal securities laws.”
Robinhood did not admit or deny the SEC’s conclusions. Instead, the company agreed to comply with a cease-and-desist order which prevents it from noncompliance to the antifraud requirements of the Securities Act of 1933. The order also forces Robinhood to comply with the recordkeeping requirements of the Securities Exchange Act of 1934.
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