Robinhood under fire
Multiple law firms this week have issued press releases stating they are investigating US-based stock trading platform Robinhood over federal securities failings.
Over a dozen high-profile legal firms have reached out to Robinhood shareholders after it emerged the Financial Industry Regulatory Authority ordered the company to pay $29.75m for multiple violations.
On March 7, FINRA ordered Robinhood to pay $3.75m to its customers while fining the New York-based firm $26m for breaching anti-money laundering, supervisory and disclosure laws.
legal firms reached out to shareholders
According to a commercial and securities litigation firm reaching out to affected shareholders, Robinhood’s stock price plummeted “$8.79 per share, or 19.79%, to close at $35.63 per share” on March 10.
Despite the news, Robinhood announced Monday the launch of prediction markets for March Madness, even though the feds stopped its previous attempt to run a book on Super Bowl LIX.
FINRA takes firm to task
While it remains to be seen if the Commodity Futures Trading Commission will step in again and halt customers trading contracts on Robinhood’s March Madness market, FINRA’s action has opened the door for potentially costly litigation.
FINRA accused Robinhood of failing to build and implement “reasonable” AML programs, resulting in the trading platform’s inability to detect, investigate or report shady activity.
third-party hackers taking over Robinhood customer accounts
The suspicious activity FINRA is referring to includes “manipulative trading, suspicious money movements” and third-party hackers taking over Robinhood customer accounts.
The federal body also charged Robinhood with opening 1000s of accounts without reasonably verifying customer ID, and permitting social media marketing that included statements that were “promissory or not fair and balanced, and thus misleading to investors.”
FINRA’s Executive Vice President and Head of Enforcement Bill St. Louis used its censure of Robinhood to warn other members that “compliance with core regulatory obligations remains critical to safeguarding and serving all investors.”
Doubts gather
St. Louis added that technological advances in the brokerage industry “have allowed millions of new investors to access the markets.”
None of those new investors come bigger than the likes of Robinhood, Kalshi, and Polymarket, with the FINRA penalty highlighting the uncertainty of the Contract for Difference’s (CFD) offered by the firms.
Late last month, multiple US tribal groups united against the threat of prediction and event market operators, such as Kalshi and Robinhood, arguing CFDs “would destroy the value of tribal gaming compacts.”
In the same week Congresswoman Dinah Titus slammed CFDs as contrary to state gaming regulations, while the American Gaming Association stated it had “very strong concerns” with event markets.