Home FinanceBusiness Robinhood Settles S.E.C. Charges Over Misleading Customers

Robinhood Settles S.E.C. Charges Over Misleading Customers

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The Securities and Exchange Commission on Thursday said that Robinhood, the stock trading app, had agreed to pay $65 million to settle charges that it misled its customers about payments it received for handling their trades, the latest enforcement action against the popular platform.

Millions of investors have turned to Robinhood in recent years, lured by a sales pitch of no trading fees. The charges announced on Thursday apply to Robinhood’s disclosures from 2015 to late 2018, the regulator said.

The S.E.C. had charged Robinhood with “repeated misstatements that failed to disclose the firm’s receipt of payments from trading firms for routing customer orders to them, and with failing to satisfy its duty to seek the best reasonably available terms to execute customer orders,” it said in a statement.

“Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm,” Stephanie Avakian, director of the S.E.C.’s enforcement division, said in a statement. “Brokerage firms cannot mislead customers about order execution quality.”

Dan Gallagher, Robinhood’s chief legal officer, said that the company was committed to helping meet its customers needs. “The settlement relates to historical practices that do not reflect Robinhood today,” he said in a statement.

The federal charges come a day after regulators in Massachusetts accused Robinhood with aggressively courting and manipulating inexperienced investors and then failing to protect them. In a complaint, the Massachusetts secretary of the commonwealth, William F. Galvin, said that Robinhood focused on signing up young traders with perks like free shares, and then used “gamification” marketing techniques to persuade them to trade often. Many of these investors were allowed to trade risky options without proper screening, the filing claimed.

A representative for Robinhood, responding to the Massachusetts action on Wednesday, defended the company’s policies, saying in a statement that it did not make investment recommendations. “We disagree with the allegations in the complaint by the Massachusetts Securities Division and intend to defend the company vigorously,” the statement said.

The representative added that it had added safeguards and educational offerings to help better inform customers about options trading.

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