Robinhood Securities LLC & Robinhood Financial LLC
The SEC settled a range of SEC charges arising from the brokerage operations of Robinhood Securities LLC and Robinhood Financial LLC (collectively, “Robinhood”) for a combined $45 million in civil penalties. According to the SEC’s order, the violations by Robinhood related to the following conduct:
Suspicious Activity Reporting: From January 2020 through March 2022, Robinhood failed to timely investigate suspicious transactions, resulting in systematic failures to timely file suspicious activity reports.
Identity Theft Protection: From April 2019 to July 2022, Robinhood failed to implement adequate policies and procedures designed to protect their customers from the risk of identity theft.
Unauthorized Access to Robinhood Systems: From June 2021 through November 2021, Robinhood failed to adequately address known risks posed by a cybersecurity vulnerability related to remote access to their systems. In November 2021, a third party obtained unauthorized access and downloaded information related to millions of individuals who had provided that information to Robinhood.
Off-Channel Communications: Robinhood had longstanding failures to maintain and preserve electronic communications in violation of the recordkeeping provisions of the federal securities laws. Both firms admitted the findings in the order concerning their off-channel communications failures.
Retention of Brokerage Data: Robinhood failed to maintain copies of core operational databases in a manner that ensured legally required records were protected from deletion or modification for the required length of time.
Failure to Maintain Customer Communications: Robinhood failed to maintain some of their communications with their brokerage customers as legally required between 2020 and 2021.
In addition, according to the SEC’s order, Robinhood Securities alone committed the following violations:
Electronic Blue Sheets: For more than five years, Robinhood Securities failed to provide complete and accurate securities trading information, known as blue sheet data, to the SEC. Robinhood Securities admitted the SEC’s findings concerning blue sheet filings.
Fractional Share Trading and Stock Lending: In connection with its stock lending and fractional share trading programs, Robinhood Securities failed to comply with Regulation SHO, the regulatory framework designed to address abusive short selling practices. From May 2019 through December 2023, Robinhood Securities violated Reg SHO’s close-out, order-marking, and locate requirements.
Regulation SHO: The SEC’s order finds that Robinhood Securities violated Rules 200(g), 203(b)(1), and 204(a) of Reg SHO.
The order further finds that both firms violated Rule 30(a) of Regulation S-P, Rule 201 of Regulation S-ID, and the broker-dealer recordkeeping and reporting provisions of the federal securities laws.
Both firms admitted certain findings in the order and agreed to be censured. Additionally, both firms agreed to conduct an internal audit concerning off-channel communications compliance, and Robinhood Securities agreed to certify its remediation of the deficiencies that caused the Reg SHO violations.
Robinhood Securities agreed to pay a $33.5 million penalty and Robinhood Financial agreed to pay a $11.5 million penalty.
