Robinhood Financial agreed Thursday to pay $65 million to settle allegations from the Securities and Exchange Commission (SEC) that the investment platform misled customers and provided overpriced trades.
Between 2015 and 2018, when the company was growing rapidly, Robinhood failed to tell clients that it was receiving payments from trading firms for routing trading orders to them, a practice called “payment for order flow,” the SEC said in a statement announcing the settlement.
Robinhood claimed its commission-free trading and trade execution was equal to or better than its competitors, the SEC said, but in reality, the company was receiving “unusually high” payments for order flow. Customers in turn were charged more than they should have to execute trades—a total of $34.1 million more—despite not paying a commission.
“There are many new companies seeking to harness the power of technology to provide alternative ways for people to invest their money,” Erin E. Schneider, director of the SEC’s San Francisco regional office, said in the statement. “But innovation does not negate responsibility under the federal securities laws.”
In addition to the $65-million civil penalty, Robinhood agreed to hire an independent consultant to review its policies on customer communications, payment for order flow, and execution of customer orders. The company didn’t admit or deny wrongdoing, the SEC said.
“The settlement relates to historical practices that do not reflect Robinhood today,” Dan Gallagher, Robinhood’s chief legal officer, said in a separate statement Thursday. “We recognize the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve
Read more on thebalancemoney.com