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In a massive blow ahead of the company’s initial public offering (IPO), online brokerage platform, Robinhood, has been ordered by The Financial Industry Regulatory Authority (FINRA) to pay a nearly $70 million dollar fine for “widespread and significant harm suffered by customers”.

The firm’s trading platform for stocks and cryptocurrencies experienced a string of outages in March 2020. FINRA said the disruption affected millions of customers and resulted in individual customers losing tens of thousands of Dollars.

“In determining the appropriate sanctions, FINRA considered the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the firm, millions of customers affected by the firm’s systems outages in March 2020, and thousands of customers the firm approved to trade options even when it was not appropriate for the customers to do so.”

Additionally, FINRA found that, during certain periods since September 2016, the firm has negligently communicated false and misleading information to its customers. The false and misleading information included: whether customers could place trades on margin, how much cash was in customers’ accounts, how much buying power or negative buying power customers had and the risk of loss customers faced in certain options transactions.

The regulator made reference to a 20 year old trader, Alex Kearns, who tragically took his own life in June 2020 after mistakenly believing he’d lost nearly $750,000. According to the settlement, Robinhood also displayed inaccurate negative cash balances to certain other customers.

“This action sends a clear message – All FINRA member firms, regardless of their size or business model, must comply with the rules that govern the brokerage industry, rules which are designed to protect investors and the integrity of our markets.” FINRA said in a statement.

FINRA has accordingly fined Robinhood Financial LLC $57 million and ordered the firm to pay approximately $12.6 million in restitution, plus interest, to thousands of affected customers. This is the largest penalty the regulator has ever ordered.

Feature image by Marco Verch from flickr

Andrew is a law student currently studying at UNISA, and Global Crypto's in-house reporter. Andrew discovered blockchain in his final year of school and since developed a keen interest in the subject. He appreciates a good cup of coffee. When he is not too busy with work or studies, he enjoys playing a good round of golf.