The Minnesota Department of Commerce announced today it has joined a multistate settlement coordinated by the North American Securities Administrators Association (NASAA) under which Robinhood Financial will pay up to $10.2 million in penalties for operational and technical failures that harmed main street investors. Minnesota will receive $200,000 under the settlement. 

The settlement stems from Robinhood’s operational failures in the retail market and comes after an investigation led by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas. 

The investigation was sparked by Robinhood platform outages in March 2020, when hundreds of thousands of investors were relying on the Robinhood app to make trades. Robinhood had more than 200,000 customers in Minnesota at the time. In addition, before March 2021, there were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping.  

“Multistate settlements like this one provide an important avenue for the Minnesota Department of Commerce to protect consumers and ensure a fair and strong marketplace,” said Commerce Assistant Commissioner of Enforcement Jacqueline Olson. “Online financial services companies need to know they are required to follow the law just like businesses physically located in our state.”   

“This multistate agreement represents states at their best – working together for the benefit of main street investors,” said NASAA President Andrew Hartnett. “Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies.” 

The order sets out the following violations: 

• Negligent dissemination of inaccurate information to customers, including regarding margin and risk associated with multi-leg option spreads. 
• Failure to have a reasonably designed customer identification program. 
• Failure to supervise technology critical to providing customers with core broker-dealer services. 
• Failure to have a reasonably designed system for dealing with customer inquiries. 
• Failure to exercise due diligence before approving certain option accounts. 
• Failure to report all customer complaints to FINRA and state securities regulators, as may be required. 

Robinhood neither admits nor denies the findings as set out in the states’ orders. 

Robinhood will provide access to a FINRA-ordered compliance implementation report to settling states. Robinhood retained an independent compliance consultant who made recommendations for remediation, which Robinhood has generally implemented. 

One year after the settlement date, Robinhood will attest to the lead state, Alabama, that it is in full compliance with the FINRA-ordered independent compliance consultant’s recommendations or has otherwise instituted measures that are more effective at addressing the recommendations.  

“Today’s agreement reflects the ongoing efforts by state securities regulators to protect investors and make sure that they are treated fairly by financial services firms,” said Joseph P. Borg, Director of the Alabama Securities Commission. 

Borg noted that state securities regulators found no evidence of willful or fraudulent conduct by Robinhood and that Robinhood fully cooperated with the investigation.  

MEDIA CONTACTS: 

Brett Benson, Assistant Director of Communications
Minnesota Department of Commerce
brett.benson@state.mn.us