South Carolina joins $10M settlement with Robinhood Financial LLC

COLUMBIA — South Carolina has joined a multistate settlement with Robinhood Financial LLC, which will pay up to $10.2 million in penalties for operational and technical failures that harmed investors, state Attorney General Alan Wilson has announced.

“[The] agreement reflects the ongoing efforts by state securities regulators to protect investors and make sure that they are treated fairly by financial services firms,” Wilson said in a news release from his office.

The settlement stems from an investigation spearheaded by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas and the North American Securities Administrators Association into Robinhood’s operational failures in the retail market.

The investigation was sparked by Robinhood platform outages in March 2020, a time when hundreds of thousands of investors were relying on its app to make trades, the release says.

Before March 2021, there also were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left users unable to process trades even as the value of certain stocks was dropping.

According to the release, South Carolina’s consent order settlement sets out the following violations:

• Negligent dissemination of inaccurate information to customers, including regarding margin and risk associated with multileg option spreads.
• Failure to have a reasonably designed customer identification program.
• Failure to supervise technology critical to providing customers with core broker-dealer services.
• Failure to have a reasonably designed system for dealing with customer inquiries.
• Failure to exercise due diligence before approving certain option accounts.
• Failure to report all customer complaints to the Financial Industry Regulatory Authority and state securities regulators, as may be required.

Robinhood neither admitted nor denied the findings as set out in the consent order, the release says. Robinhood fully cooperated with the investigation, and the S.C. Securities Division found no evidence of willful or fraudulent conduct by the company.

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