Robinhood Faces Legal Action from US Regulator Over 'Aggressive Marketing': WSJ
The Massachusetts Securities Division reportedly wants Robinhood to better protect its inexperienced traders.
Dec 16, 2020 at 1:41 p.m. UTCUpdated Aug 19, 2021 at 6:09 a.m. UTC
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Trading platform Robinhood is facing a legal complaint from a U.S. state regulator accusing the firm of “aggressively marketing” its services to inexperienced traders, the Wall Street Journal said Wednesday.
- The Massachusetts Securities Division has prepared a 20-page draft administrative complaint, seen by the WSJ, which states Robinhood had exposed investors to “unnecessary trading risks” and violated state laws and regulations.
- During the coronavirus pandemic, many young, inexperienced investors have started using the Robinhood app, which offers trading in stocks, exchange-traded funds and options, as well as cryptocurrency buying and selling.
- The platform has been reaping the benefits of the influx of users by "prioritizing its revenue over the best interest of its customers,” the Massachusetts complaint alleges.
- Robinhood is also accused of encouraging “continuous and repeated engagement with its application" by "gamifying" trading, and allowing unqualified investors to trade options.
- The Massachusetts regulator wants Robinhood to improve its policies by approving users for options trading, and is further seeking an administrative penalty be paid by the platform. It should also get outside help in improving the platform to tackle outages, per the draft.
- “Robinhood has opened up financial markets for a new generation of people who were previously excluded. We are committed to operating with integrity, transparency, and in compliance with all applicable laws and regulations,” a Robinhood spokeswoman told the WSJ.
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