Robinhood Markets Inc. Friday told Massachusetts regulators that it does not take advantage of inexperienced clients, ending a wild week in which the popular online brokerage company aroused fury for doing the exact opposite: getting in the way of customers.
Robinhood, still reeling from the fierce backlash from its decision this week to bar clients from trading on certain high-flying stocks, Robinhood responded late Friday to a December complaint from Massachusetts securities regulators. The state has accused Robinhood of failing to protect its clients and their assets through aggressive marketing to inexperienced investors and failing to conduct controls to protect them.
In a 50-page response, Robinhood called the allegations false and the complaint “ misrepresents the Robinhood experience. ”
Instead, Robinhood argued, it has opened the door to investment for millions of people. It rejected claims that the brokerage is gamifying investing, failing to maintain agile technology operators, and enabling clients to engage in riskier options trading without having the necessary qualifications. In fact, Robinhood said, the items it was criticized for by regulators are legal.
“It is legal for customers to choose to receive notifications on their phones, be on waiting lists, and receive free shares. App features such as digital confetti are legal, ”said Robinhood in his response. “It is also legal for those clients to trade options, and for Robinhood to approve clients for options trading based on previous options experience.”
It continued, “And it’s legal for Robinhood to have an app that has had temporary outages in isolated cases. All websites and apps are prone to outages, and many brokerage firms are affected. “
A spokeswoman for Commonwealth of Massachusetts secretary William Galvin, whose office filed the administrative complaint in December, declined to comment on Robinhood’s response, saying it is under review. She added that the office is still confident in his complaint “and recent events have not changed that.”
In just over a month, a lot has changed for the online brokerage, where millions of users have flocked to place trades for free in recent years. In addition to the Massachusetts allegations, Robinhood is now being scrutinized by individual investors and members of Congress, who accuse the company of preventing users from taking advantage of a wild week of trading. On Thursday, Robinhood was one of several brokers to restrict trading in popular stocks, including GameStop Corp.
and AMC Entertainment Holdings Inc.
Behind the scenes, Robinhood was rapidly assembling an infusion of more than $ 1 billion intended to help the company meet the rising demand for money resulting from the frenzied trade.
In Friday’s response to the Massachusetts case, the company also disputed claims that it does not meet the “fiduciary standard” recently passed by the state, which requires broker-dealers to act in the best interest of the customer. The allegations focused on the tactics the company uses to engage customers, claiming that it “encourages customers to use the platform constantly” through what it calls “gamification.”
Robinhood argued that the fiduciary rule does not apply because, the brokerage said, it is only relevant when a broker-dealer gives a client a recommendation or offers investment advice. Robinhood said in its response that its clients make their own trading decisions. It added that the lists it offers, such as the 100 Most Popular Stocks, are the same for all clients and are not targeting a specific client or group. It also denied that it ‘gamifies’ the investor experience and argued that criticism of app features such as confetti ‘reflects a distinctly outdated view of communication in the digital age’.
Robinhood has long prided itself on ‘democratizing’ markets – and some saw its efforts to restrict trade this week as a direct undermining of its mission. In its response on Friday, Robinhood echoed that idea to regulators, with the brokerage claiming that it had saved customers in Massachusetts between about $ 180 million to $ 360 million in commissions in the three years since December 2017.
Robinhood also claimed that “to Robinhood’s knowledge,” securities regulators did not “speak to a single Robinhood employee during the investigation” or request “important documents” on topics such as technology failures and option approval. Therefore, Robinhood claimed, the regulator’s complaint was “fundamentally contrary to the facts.”
Write to Caitlin McCabe at [email protected]
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