Regulators have taken another hulking pound of flesh from trading app Robinhood ($PRIVATE:ROBINHOOD), as the company, beset by worries about its role in “gamifying” the stock market, continues to plow forward toward a planned initial public offering.
The Menlo Park, California-based company agreed on Wednesday to pay $70 million in fines and restitution to the Financial Industry Regulatory Authority to settle a probe into widespread platform outages and an apparently confusing and sloppy approval process for placing trades on margin. The penalty is the largest ever levied by the agency, although it may be a drop in the bucket compared with the estimated $30 billion valuation it could achieve when it IPOs.
According to agency, one 20-year-old customer, who thought he did not have the “margin” option activated, nonetheless ended up borrowing funds through a margin account and eventually had a negative balance of $720,000. He took his own life in June 2020, leaving a note expressing bewilderment about how he could have purchased the securities.
Per common language in regulatory settlements, Robinhood neither “admitted nor denied” the allegations but “consented to the entry of FINRA’s findings.” In practice, this bit of rhetorical gymnastics is meant to help curb the company’s liability in possible future lawsuits.
Robinhood, however, already has plenty of other legal and regulatory matters to contend with, including a case launched by the Massachusetts Securities Division. The company’s IPO, initially set for this month, was also pushed back amid back-and-forth with the SEC over the prospectus, according to Bloomberg. Now the move is planned for later this summer or the fall.
Robinhood filed an S-1 with the U.S. Securities and Exchange Comission on Thursday, providing details on its plans to trade on the Nasdaq under the symbol "HOOD." The company disclosed that it revenue in the first quarter was $522 million, up 309 percent from the same period in 2020. The company also said it plans to allocate 20 percent to 35 percent of the IPO shares to retail customers.
Founded by 34-year-old Bulgarian-American Vlad Tenev, Robinhood continues to be one of the most popular apps on Apple’s app store. The number of ratings, indicative of how many downloads there are, have continued on an upward trajectory in recent months, despite continued platform outages and clashes with regulators, according to Thinknum data. Securities officials are concerned the app could be contributing to “gamification” of the stock market, and to surges in meme stocks like GameStop ($GME) and AMC ($AMC).
The company has maintained that its goal is to “democratize” markets by making it easier for beginners to invest. To that end, it offers commission-free trades and fractional shares. It has also been adding crypto currency trading features.
Previously, Robinhood was fined $65 million by the SEC for failing to disclose its revenue sources, and paid $1.25 million to FINRA to end a probe into whether it failed to get the best prices for its customers.
About the Data:
Thinknum tracks companies using the information they post online, jobs, social and web traffic, product sales, and app ratings, and creates data sets that measure factors like hiring, revenue, and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.