Robinhood Settles SEC Charges for $45 Million Over Past Violations

Online brokerage platform Robinhood has agreed to pay a $45 million civil penalty to the U.S. Securities and Exchange Commission (SEC) to resolve allegations of violating over 10 securities laws. The charges impacted two of its broker-dealer units: Robinhood Securities LLC and Robinhood Financial LLC. The settlement, announced on January 13, 2025, follows an investigation that uncovered multiple regulatory lapses by Robinhood.

The SEC investigation uncovered several regulatory failures, including:

1. Trading Activity Misreporting: Errors in Electronic Blue Sheets (EBS) submissions resulted in inaccurate or incomplete data for 11,849 requests, impacting 392 million transactions.
2. Failure to Preserve Communications: Robinhood did not maintain electronic customer communications from 2020–2021.
3. Suspicious Activity Reporting: Between January 2020 and March 2022, Robinhood delayed filing required suspicious activity reports.
4. Short-Sale Regulation Violations: From December 2019 to May 2022, Robinhood failed to comply with Regulation SHO, which governs short-selling practices.
5. Cybersecurity Lapses: In 2021, Robinhood failed to address a vulnerability that led to unauthorized access to millions of customers’ information.
6. Identity Theft Protections: Measures to safeguard against identity theft were inadequate from April 2019 to July 2022.

As part of the settlement, Robinhood Securities and Robinhood Financial agreed to a censure and will pay the following penalties:

* Robinhood Securities LLC: $33.5 million
* Robinhood Financial LLC: $11.5 million

Both fines must be paid by January 27, 2025. Additionally, Robinhood Securities agreed to certify its remediation of the deficiencies that caused the Regulation SHO violations, and both firms agreed to conduct an internal audit concerning off-channel communications compliance.

The settlement had minimal impact on Robinhood’s stock price, with shares declining 1.22% on January 13 to $39.59 before rebounding 0.48% in after-hours trading. Despite the regulatory challenges, Robinhood’s cryptocurrency segment has seen significant growth, with crypto trading volume and revenue increasing 112% and 165% year-over-year in Q3 to $14.4 billion and $61 million, respectively. Assets under custody rose 32.3% from Q2 to $19.5 billion.

While the SEC order did not clarify whether Robinhood’s cryptocurrency operations contributed to the violations, Robinhood’s crypto business has faced its own regulatory scrutiny. In September 2024, Robinhood’s crypto arm paid $3.9 million to settle claims in California related to crypto withdrawal restrictions between 2018 and 2022.

The past violations have likely contributed to a decline in Robinhood’s reputation and customer trust. The company’s stock price, while not significantly impacted by the $45 million settlement, has experienced fluctuations and may reflect investor concerns about the company’s regulatory compliance and operational practices. Additionally, the ongoing regulatory oversight of Robinhood’s activities, as evidenced by the Wells notice received in May 2024 regarding its crypto business, further highlights the company’s struggle to maintain customer trust and a positive reputation.

In response to the settlement, Robinhood stated, “As the SEC’s order acknowledges, most of these are historical matters that our broker-dealers have previously addressed. We look forward to working with the SEC under a new administration.” By taking the agreed-upon steps to address the identified issues and prevent future violations, Robinhood aims to restore investor confidence and maintain the integrity of the markets.