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The Securities and Exchange Commission is investigating Robinhood’s option practices and its decision to restrict trading in certain stocks at the height of the
GameStop
mania last month, Robinhood said in a securities filing Friday.
The trading platform – which is privately owned but is expected to go public this year – made the disclosures in an annual audit required for broker dealers under the Securities Exchange Act of 1934.
Robinhood has angered investors and some members of Congress over his decision that began January 28 to restrict buying certain stocks, including GameStop (ticker: GME), BlackBerry (BB),
AMC Entertainment Holdings
(AMC) and Bed Bath & Beyond (BBBY). The company has said it has been forced to curb trading due to escalating financial demands from its clearing house.
Robinhood is also facing several other customer investigations and lawsuits that the company says could lead to financial penalties.
State regulators and the Financial Industry Regulatory Authority, or Finra, are also investigating options trading on Robinhood and glitches experienced by users of the investment app in March 2020. Robinhood is negotiating a settlement with Finra that could cost the company at least $ 26.6 million, the filing said.
The company’s options practices have been under scrutiny since 20-year-old Alex Kearns committed suicide last year after voicing concerns about an options trade on his Robinhood account. Kearns’ family has filed a lawsuit against the company. Robinhood has said it was “devastated” by the death of Kearns last June and was “committed to making Robinhood a place to learn and invest responsibly.”
The company is also facing a class action lawsuit over ‘account takeovers’, where someone appears to have gained access to Robinhood accounts.
The trade restrictions imposed by Robinhood in January have led to 46 lawsuits, the company said. And a long list of agencies are investigating the matter, including “ the United States Attorney’s Office of the Northern District of California, the SEC’s Division of Examinations, Finra, the New York Attorney General’s Office, other public attorneys’ offices and some of the securities regulators of the state, ”the company said.
“Due to the highly preliminary nature of all of these proceedings, we are currently unable to estimate the likelihood or magnitude of potential losses associated with these cases,” said Robinhood.
Write to Avi Salzman at [email protected]