Oregon Joins Multi-State Settlement with Robinhood Financial

The Oregon Division of Financial Regulation (DFR) has announced its participation in a multi-state settlement with Robinhood Financial LLC, one of the nation’s largest online brokerage platforms. The settlement will see Robinhood pay up to $10.2 million in penalties as a result of operational and technical failures that had detrimental effects on investors, including some in Oregon.

This collaborative effort stems from an extensive investigation led by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas, coordinated through the North American Securities Administrators Association (NASAA). The investigation primarily focused on Robinhood’s operational deficiencies in the retail market.

The investigation was prompted by a series of platform outages experienced by Robinhood in March 2020, a critical time when hundreds of thousands of investors were reliant on the Robinhood app for trading. Moreover, prior to March 2021, Robinhood was found to have shortcomings in its review and approval process for options and margin accounts, as well as weaknesses in its monitoring and reporting tools. Additionally, the firm was found to have inadequate customer service and escalation protocols, leading to situations where Robinhood users were unable to execute trades, even as the value of certain stocks was rapidly changing.

DFR Administrator TK Keen emphasized the significance of this multi-state settlement, stating, “This multi-state settlement is another example of states working together to protect investors. DFR is committed to holding companies like Robinhood accountable when they fail to protect those who have entrusted them.”

The settlement order outlines several key violations, including the negligent dissemination of inaccurate information to customers, particularly regarding margin and the risks associated with multi-leg option spreads. It also cites Robinhood’s failure to establish a reasonably designed customer identification program, inadequate supervision of technology crucial for providing core broker-dealer services, and the absence of a reasonably designed system for handling customer inquiries. Furthermore, Robinhood was found to have failed to exercise due diligence before approving certain option accounts and neglected to report all customer complaints to FINRA and state securities regulators as required.

It is essential to note that Robinhood neither admits nor denies the findings stated in the orders. As part of the settlement, Robinhood will grant access to a Financial Industry Regulatory Authority (FINRA)-ordered compliance implementation report to the participating states. Robinhood has enlisted the services of an independent compliance consultant who has issued recommendations for remediation, most of which Robinhood has already implemented.

One year after the settlement date, Robinhood will provide assurances to the lead state, Alabama, that it is in full compliance with the recommendations made by the FINRA-ordered independent compliance consultant or has implemented alternative measures to address these recommendations more effectively.