HomeBusinessExplainer-The regulatory and legal headwinds facing Robinhood

Explainer-The regulatory and legal headwinds facing Robinhood

WASHINGTON : Robinhood Markets remains to be facing numerous legal and regulatory threats a 12 months after the retail “meme stock” buying and selling frenzy led the brokerage to limit buying and selling in some shares, infuriating clients.

That episode sparked a number of authorities probes, a flurry of personal lawsuits by aggrieved clients and buyers, and intensified regulatory scrutiny of Robinhood’s enterprise mannequin, all of which weighed on the corporate’s share worth.

“Robinhood operates in an industry that is highly regulated and subject to robust oversight,” Dan Gallagher, Robinhood’s chief legal and company affairs officer, stated in an announcement.

“We have built industry-leading legal and compliance teams to help ensure that Robinhood remains the platform of choice for millions of investors,” he added.

The firm has additionally claimed some current victories in court docket. Here are the newest developments:


Regulators have issued subpoenas or sought testimony and data from the corporate and CEO Vladimir Tenev as a part of investigations into buying and selling restrictions the brokerage imposed throughout the meme-stock volatility a 12 months in the past, Robinhood disclosed in July and once more in an up to date October submitting.

The regulators included the U.S. Attorney’s Office for the Northern District of California, the U.S. Justice Department, the U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the New York Attorney General’s Office, different state attorneys common, Congress and some state securities regulators, Robinhood stated on the time.

Robinhood can also be facing non-public lawsuits associated to the meme inventory volatility and its core enterprise practices, resembling payment-for-order movement (PFOF), whereby retail brokers route orders to wholesale market makers in return for fee.

The firm has seen some success on that entrance. A federal decide on Thursday dismissed buyers’ claims of negligence and breach of fiduciary obligation. [L1N2U724N]

The identical Miami decide beforehand dismissed one other lawsuit accusing Robinhood and different brokerages of colluding with market maker Citadel Securities to stop “meme stocks” from rising, allegations the businesses deny. The plaintiffs have refiled the lawsuit.

Another go well with alleging Robinhood violated securities regulation amid the meme inventory fracas is pending.


This month a FINRA arbiter stated Robinhood owed slightly below $30,000 in damages to a person who sought compensation for alleged negligence, breach of contract and different points associated to the brokerage’s buying and selling restrictions of January 2021. It was the primary such profitable declare, after others have been denied. Jorge Altamirano, the legal professional for the Robinhood buyer, stated his agency has acquired “an overwhelming outreach” from others and is at the moment vetting legal claims.

Robinhood can also be being probed by New York state’s Department of Financial Services over anti-money laundering and cybersecurity points.

In April 2021, the California Attorney General’s Office issued a subpoena looking for paperwork about Robinhood’s buying and selling platform, enterprise and operations, and the appliance of California’s commodities rules to the platform, the October submitting says.

The Massachusetts Securities Division (MSD) additionally sued Robinhood in December 2020 alleging unethical and dishonest conduct and failure to behave in accordance with its fiduciary obligation amongst different lapses. Robinhood has rejected the allegations and is preventing the go well with.

Both the SEC and FINRA have requested data from the agency about its now-defunct “For You” function and “other features displaying lists of securities to customers.”

Spokespeople for California’s legal professional common and FINRA declined to remark. The different companies didn’t reply to requests for remark. Robinhood, which has stated it’s cooperating with the probes, declined to supply recent particulars on them.


Due to the meme inventory saga, the SEC is scrutinizing commission-free brokers’ enterprise practices, most notably PFOF. Transaction-based income accounts for greater than 70per cent of Robinhood’s income, the corporate stated on Thursday.

SEC Chair Gary Gensler has questioned whether or not brokers are incentivized to encourage clients to commerce extra ceaselessly to spice up their income and has floated banning PFOF.

The company can also be inspecting the usage of game-like options to encourage buying and selling and different digital engagement practices.

New regulation in these areas may require “significant changes to our business model,” Robinhood has warned.

(Reporting by Chris Prentice, Michelle Price, Hannah Lang, Jody Godoy, and Nate Raymond; Editing by Paul Simao)



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