Robinhood, the online trading platform that saw its popularity soar during the pandemic, may be too popular.
Massachusetts securities regulators have filed an administrative complaint against the company, accusing the company of “using aggressive tactics to attract new, often inexperienced investors” and of acting “without regard to the interests of its clients.”
The Massachusetts Securities Division is now seeking an injunction for the California-based company to “issue refunds to fairly compensate investors for those losses due to the alleged wrongdoing” and to bring in an independent compliance adviser. to review its infrastructure, platform and policy requirements, among other things.
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“As a broker-dealer, Robinhood has a duty to protect its customers and their money,” William Galvin, the Secretary of the Commonwealth of Massachusetts, shared with FOX Business in a statement.
“Treating this like a game and enticing young and inexperienced customers to make more and more transactions is not only unethical, but also falls far short of the standards we set in Massachusetts.”
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The statement from Galvin’s office adds that “Robinhood, which generates revenue for transactions executed by its clients, allowed clients with no investment experience to execute a potentially unlimited number of trades without properly screening them to be approved for option trading. “
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In the 24-page complaint, the Massachusetts Securities Division alleges that Robinhood violated state laws and regulations by “aggressively advertising investors in Massachusetts without regard to the interests of its clients and failing to maintain the infrastructure and procedures necessary. are to meet the demands of its rapidly growing customer base. “
The complaint alleges that the trading platform had as many as 70 outages or outages between January and the end of November this year.
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“One of the most noticeable failures occurred [on] March 2 and 3 “when the“ Dow Jones Industrial Average experienced the greatest point gain in its history at that time, ”it states. customers could not take advantage of the historical market gains. “
“The collapsed platform was inoperative for the entire day of March 2, 2020 and part of the day on March 3, 2020,” it continued.
“Despite the inability to maintain an adequate infrastructure, Robinhood continues to invite more and more customers to open accounts, and once these accounts are open, it encourages customers to use the platform constantly,” adds the complaint.
In a statement to FOX Business, a Robinhood spokesperson denied the allegations in the complaint and promised the company will “vigorously” defend itself.
“Robinhood is a self-driving broker-dealer and we do not make investment recommendations. Over the past few months, we’ve worked hard to ensure that our systems are scalable and available when people need them, ”said the spokesperson.
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“We have also made significant improvements to our range of options, adding precautions and improved educational materials,” the spokesperson added. “Millions of people have made their first investments through Robinhood, and we continue to focus on serving them.”
But the complaint states that “Robinhood, as a broker-dealer in Massachusetts, has an obligation to protect customers and their assets.”
“However, the business model and lack of adequate procedures have put both customers and their assets at risk,” he added. “By doing this, Robinhood is failing to meet the recently adopted standards of conduct for Massachusetts registered broker-dealers.”