Colorado Securities Commissioner Announces Settlement With Robinhood For Failing Investors
DENVER, CO – April 6, 2023 - The Colorado Securities Commissioner Tung Chan announced a multi-state settlement with Robinhood Financial LLC who will pay up to $10.2 million in penalties for operational and technical failures that harmed main street investors and will implement internal changes.
“Robinhood failed to serve its retail clients. When customers had questions about their accounts, Robinhood responded with automated email and chats or significantly delayed responses. This was unfair to Robinhood customers who deserved timely and issue-specific answers,” Chan said. “This settlement makes clear that Robinhood and every trading platform must take their customer care obligations seriously.”
The settlement stems from an investigation spearheaded by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas regarding Robinhood’s operational failures with respect to the retail market. A copy of the order can be found on our website under Search Enforcement Actions.
The investigation was sparked by Robinhood platform outages in March 2020, a time when hundreds of thousands of investors were relying on the Robinhood app to make trades. In addition, prior to March 2021, there 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 Robinhood users unable to process trades even as the value of certain stocks was dropping.
The order sets out the following violations:
Negligent dissemination of inaccurate information to customers, including regarding margin and risk associated with multi-leg 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 exercise due diligence before approving certain option accounts.
- Failure to establish, maintain, and enforce written procedures to set forth the prompt review and written approval of the handling of customer complaints.
- Failure to maintain and implement adequate supervisory systems over its customer support.
Robinhood neither admits nor denies the findings as set out in the States’ orders.
Robinhood, under the settlement, is required to maintain policies and procedures to supervise its customer support function, including providing accurate disclosure to customers around customer support capabilities. Robinhood will be required to regularly report its customer service responsiveness to senior management, such reports to be available to regulators in a securities examination of the firm.
Robinhood will also provide access to a FINRA-ordered compliance implementation report to settling states. Robinhood retained an independent compliance consultant who made recommendations for remediation, which Robinhood has generally implemented.
One year after the settlement date, Robinhood will attest to the lead state, Alabama, that it is in full compliance with the FINRA-ordered independent compliance consultant’s recommendations or has otherwise instituted measures that are more effective at addressing the recommendations.
“The Colorado Department of Regulatory Agencies is our state’s consumer protection agency,” said Patty Salazar, Executive Director of the Colorado Department of Regulatory Agencies. “Collaboration like this allows us to better protect Coloradans from negative consumer experiences.”
“Today’s agreement reflects the ongoing efforts by state securities regulators to protect investors and make sure that they are treated fairly by financial services firms,” said Joseph P. Borg, Director of the Alabama Securities Commission.
Borg noted that state securities regulators found no evidence of willful or fraudulent conduct by Robinhood, and that Robinhood fully cooperated with the investigation.
About DORA and the Division of Securities
DORA is the state's umbrella regulatory agency, charged with managing licensing and registration for multiple professions and businesses, implementing balanced regulation for Colorado industries, and protecting consumers. Our nearly 600 employees are dedicated to preserving the integrity of the marketplace and promoting a fair and competitive business environment throughout Colorado.
The Division of Securities exists to protect investors and maintain confidence in the securities market, while avoiding unreasonable burdens on the marketplace by licensing securities professionals, enforcing securities law violations, and helping Coloradans become more informed investors.
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