Robinhood Settles with SEC Over Multiple Securities Law Violations and Compliance Failures

Brayden Lindrea reports in Cointelegraph that Robinhood has agreed to a $45 million penalty to settle with the US Securities and Exchange Commission. The settlement follows an investigation into violations of securities law provisions by Robinhood’s broker-dealers. They were found to have committed numerous regulatory infractions, including failures in accurate reporting, timely suspicious activity reports, maintaining records, and safeguarding customer information.

The SEC’s investigation revealed that from 2020 to 2021, Robinhood failed to maintain and preserve customer electronic communications and provided inaccurate data on at least 11,849 Electronic Blue Sheets, formal requests for information from the SEC, affecting reporting on 392 million transactions.

Additionally, Robinhood did not report suspicious activities promptly between January 2020 and March 2022 and neglected identity theft protections from April 2019 to July 2022.

The company also failed to comply with Regulation SHO, a rule regulating abusive short-selling practices and did not address a cybersecurity vulnerability that allowed unauthorized access to customer information.

Based on the findings, Robinhood Securities agreed to pay $33.5 million, and Robinhood Financial agreed to pay $11.5 million. Robinhood’s crypto business recently settled separate allegations with California for $3.9 million.

The case underscores the critical importance of timely reporting of cyber incidents. Scrutiny of Robinhood’s record-keeping and cybersecurity practices highlights the need for companies to maintain rigorous internal controls and transparent reporting mechanisms. Legal counsel should advise clients on the necessity of up-to-date compliance systems and measures to protect customer data and adhere to regulatory requirements.