Robinhood faces SEC probe over deal disclosure
Digital brokerage firm Robinhood could be facing a civil fraud penalty the Securities and Exchange Commission (SEC) over disclosure issues.
According to Wall Street Journal sources, Robinhood is in hot water over a failure to fully disclose its tactic of selling orders to high-speed trading firms.
The SEC is at an advanced stage in its probe, says the sources, and the brokerage unicorn could be forced to pay a fine of more than $10 million if it settles.
Robinhood failed to disclose on its website that it took payments from high-speed trading firms in exchange for sending them client orders.
The process, known as “payment for order flow”, is used by retail brokerages to execute trades. Until 2018, Robinhood did not list this practice on a webpage dedicated to explaining how its business model made money.
Its new webpage states that the firm “receives rebates from executing brokers”. In October 2018, when it changed the page, co-founder Vladimir Tenev posted a blog entry about payments to high-speed firms.
A shaky 2020
Robinhood has faced a series of setbacks and issues this year.
It suffered repeated outages after price drops led to overwhelming trading volumes in February and March. A group of Californian customers filed a class-action lawsuit against the company for its part in the issues.
In July, the firm scrapped its plans to launch in the UK, despite having landed a licence in August 2019.
The company again hit headlines when 20-year-old student Alex Kearns took his own life after wrongly believing he had lost $730,165 on its platform.
It faced further outages this week when a late-August surge in trading caused technical difficulties.