Robinhood Settles With SEC For $45M Over Securities Law Violations

Robinhood, the popular online brokerage platform, has agreed to pay a $45 million settlement to the US Securities and Exchange Commission (SEC) following allegations of violating over ten securities law provisions.

The settlement affects Robinhood’s broker-dealer subsidiaries, Robinhood Securities LLC and Robinhood Financial LLC, according to a 13 January 2025  press release from the SEC. Per the statement, the SEC’s investigation found that the Robinhood entities failed to comply with a range of regulatory requirements.

Violations included inaccurate reporting of trading activity, failure to comply with short sale rules, untimely filing of suspicious activity reports, inadequate record-keeping, and insufficient safeguards for customer information.

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Robinhood Missed Customer Communications From 2020-2021

A key finding was Robinhood’s failure to maintain and preserve customer electronic communications between 2020 and 2021. Additionally, the SEC noted that the company submitted over 11,849 inaccurate or incomplete Electronic Blue Sheets (EBS), leading to errors in the reporting of approximately 392 million transactions.

The SEC also cited Robinhood for not reporting suspicious activity in a timely manner between January 2020 and March 2022 and for insufficient identity theft protection measures from April 2019 to July 2022.

From December 2019 to May 2022, the company also failed to comply with Regulation SHO, which regulates short-selling practices. Furthermore, a cybersecurity vulnerability in 2021 allowed unauthorized access to information related to millions of customers.

BREAKING NEWS:
JAN 13, 2025
SEC Robinhood Naked Short Selling

"Dec 2019 – Dec 2023, Robinhood mismarked more than 15 million principal short sales as “long.”

…did not comply w/ locate reqs for any…mismarked Fractional Trading & Recurring Orders principal short sale orders" pic.twitter.com/CJd4bk6vyz

— ringingbells (@u_ringingbells) January 14, 2025

Robinhood Securities will pay $33.5 million of the penalty, while Robinhood Financial will pay $11.5 million. Both payments are due by 27 January 2025, and the firms agreed to be censured as part of the settlement.

Despite the settlement, Robinhood’s stock (HOOD) saw minimal impact, closing at $39.59 on Jan. 13, down 1.22%, and recovering slightly in after-hours trading.

The violations’ connection to Robinhood’s crypto operations remains unclear, though the company previously settled for $3.9 million with California regulators in September over customer withdrawal issues. Robinhood did not admit or deny wrongdoing in either case.

Meanwhile, Robinhood’s crypto trading volume and revenue surged in the third quarter, with trading volume up 112% year-over-year to $14.4 billion, revenue up 165% to $61 million, and crypto assets under custody increasing 32.3% to $19.5 billion.

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SEC Faces Leadership Change

The SEC faces leadership changes as Gensler announced plans to step down on January 20, and Commissioner Jaime Lizárraga is also set to leave before Trump’s inauguration.

Meanwhile, Donald Trump has selected Paul Atkins, a crypto advocate and former SEC commissioner, as his choice to lead the SEC.

He has also appointed David Sachs, a podcaster, as the “Crypto Czar” in his cabinet. He also pledged to make America the “crypto capital of the world” through initiatives like World Liberty’s lending and borrowing platform.

As reported, the SEC has taken a tougher stance against crypto firms in 2024. More specifically, the regulator imposed nearly $4.7 billion in enforcement actions against crypto companies, a 3,018% increase from 2023.

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