ToplineRobinhood Financial was fined almost $70 million Wednesday by the Financial Industry Regulatory Authority in a major regulatory blow ahead its initial public offering.This fine is the most severe ever imposed by regulator FINRA. SOPA Images/LightRocket via Getty ImagesThe Key FactsRobinhood was fined $57 million by FINRA and ordered to pay $12.6million in restitution plus interest to thousands of customers who suffered "significant harm" due to company practices. This is the largest fine ever imposed by FINRA against a company. Robinhood will be paying back $7 million in restitution to thousands of customers who suffered significant harm due to misleading and false information the brokerage provided. This includes a negative cash balance that caused the suicide of a 20 year-old girl in June 2020. FINRA also found that Robinhood failed to monitor its broker-dealer technology, which allows it to accept and execute orders from customers. This led to a series "serious outages" that prevented customers accessing their accounts during periods of market volatility. This settlement follows a series of other regulatory fines, including a $65m settlement with the Securities and Exchange Commission. According to FINRA the settlement settles several charges against Robinhood. These include the failure to exercise due diligence prior to approving customer accounts, and the provision of false or misleading information. Robinhood spokeswoman told Forbes via email that the company was happy to resolve this matter and highlighted its investments in platform stability, educational resources, customer support, legal and compliance teams, and building them out.Important QuoteThis is a clear signal: All FINRA member companies, regardless of size or business model must adhere to the rules that govern brokerage industry rules. These rules are intended to protect investors as well as the integrity of the markets. Jessica Hopper, FINRA, stated in a statement.Important BackgroundRobinhood, which has more than 13 million customers worldwide, has been the subject of a slew of regulatory actions over the past year. These measures have focused on critical aspects the company's business model. The SEC stated that Robinhood had repeatedly misled customers regarding its revenue sources, and failed to comply with trade-execution standard. This practice resulted in customers losing more than $34million over three years. In April, the Massachusetts Securities Division filed an administrative complaint against Robinhood for allegedly gamifying its platform, and steering customers towards bad investments. This practice left customers out on more than $34 million over a period of three years.What to WatchRobinhood had hoped to begin trading in March when it filed to become public in March. But, according to Bloomberg last week, Robinhood has been experiencing a slowdown of several weeks due to back-and-forth negotiations with the SEC. The brokerage's cryptocurrency trading business is being questioned by regulators, who are reportedly looking for answers. This was a highly-popularized product that has seen a huge boom in popularity due to the massive market crash.Continue readingA 20-year-old Robinhood customer dies after seeing a $730,000 negative balance (Forbes).Robinhood pays $65 million to SEC for misleading customers who lost $34 million on inferior trade prices (Forbes).
