The self-proclaimed 'Democratized Finance' app will have to pay another $30 million to appease regulators. The total regulatory penalty and settlement tab is well over 100 million dollars. The New York State Department of Financial Services accused the company of engaging in a number of anti-money-laundering, cybersecurity, and consumer protection violations. The company is best known for its micro stock trading service that is attractive to casual investors. NYDFS investigators claim that Robinhood failed to maintain an effective and compliant cybersecurity program. Critical failures were found in the company's cybersecurity program. An independent consultant will be retained to evaluate the company's compliance moving forward.
The NYDFS said that the company failed to invest the proper resources and attention to develop and maintain a culture of compliance.
The company was pleased to make the settlement final, according to Cheryl Crumpton.
"We have made significant progress building industry-leading legal, compliance, and cybersecurity programs, and will continue to prioritize this work to best serve our customers" We are excited to continue to grow our business in a responsible way with new products and services that our customers want.
The NYDFS fine was just the beginning. Within hours of the announcement, the CEO and founder of the company published a post announcing that the company would be cutting 23% of its workforce. The dramatic cuts will impact workers throughout the company, with operations, marketing, and program management teams bearing the brunt of the burden.
Three months after it announced it would axe 9% of its staff, the layoffs are happening. Those cuts did not go far enough according to Tenev. The CEO said that growing inflation and the collapse of the cryptocurrencies market has reduced trading activity.
Tenev said that many of their operations functions were staffed last year because of the increased retail engagement they had seen with the stock andcryptocurrencies. We are operating with more people than necessary. I took responsibility for our staffing trajectory as CEO.
It only entered the collective imaginations of most people last year for its role as the main vehicle for retail investors to pump up Gamestop and other so-called meme-stocks. Some users made a lot of money while others lost a lot. When it halted trading of certain stocks, some users were prevented from selling until prices subsided. The company has faced a number of regulatory complaints. In June of last year, the Financial Industry Regulatory Authority hit Robinhood with the largest fine in the agency's history. The Securities and Exchange Commission charged the company with misleading customers with claims of being commission-free.
Individual investors are starting to see some payouts. An arbitrator for the Financial Industry Regulatory Authority (FIRA) ruled in favor of a truck driver named Jose Batista, who claimed he had lost money after Robinhood imposed trading restrictions. The man was ordered to pay $29,500 in compensation by the Financial Industry Regulatory Authority. There is more than one Batista, though. According to a Freedom of Information Act request filed by Gizmodo, the Federal Trade Commission received over 3000 complaints about the app.
"I understand the market can be volatile, but this was refusing to honor trades of people who purchased the stock legitimate," one user said in a complaint. I assume that Robinhood will do this in the future to any other stock they don't want to pay out, since they haven't given a response to customer service emails, or any other issues.
There is more news of workforce cuts at this time.
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