A $65 Million Lawsuit Is Not A Good Sign For Robinhood (New Changes)
By: Isaiah Mccall
Tags: Money, Economics, Business, Investing, Bitcoin

A $65 Million Lawsuit Is Not A Good Sign For Robinhood (New Changes)

Robinhood is like a video game, according to the SEC

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Robinhood financial was fined $65 million for “failing to disclose” to customers how the company makes its revenue from their trades, the SEC announced last week.

Additionally, the SEC accused Robinhood of several other problems:

Coaxing new investors with aggressive marketing tactics like rewarding users “with colorful confetti raining down their screens after executing trades,” according to court documents.

with aggressive marketing tactics like rewarding users “with colorful confetti raining down their screens after executing trades,” according to court documents. Major outages on the app, including one in March when the Dow Jones Industrial Average had a one-day historic gain of roughly 1,290 points. Federal regulators are now investigating the outage, Bloomberg reports. The app has had roughly 70 outages in 2020.

including one in March when the Dow Jones Industrial Average had a one-day historic gain of roughly 1,290 points. Federal regulators are now investigating the outage, Bloomberg reports. The app has had roughly 70 outages in 2020. Breaking their own policies by allowing inexperienced traders to do things like options trading. They allowed beginner investors to make risky bets that were against those users' best interests.

by allowing inexperienced traders to do things like options trading. They allowed beginner investors to make risky bets that were against those users' best interests. Accounts are frequently hacked. A Robinhood user from Illinois killed himself after his account mistakenly showed a negative $730,000. In October, an undisclosed number of accounts were hacked and users complained they couldn’t reach Robinhood customer service to get their issues fixed.

Robinhood Vs. Massachusetts

This lawsuit comes directly after the Massachusetts Securities Division filed a major complaint against Robinhood.

Massachusetts regulators alleged that Robinhood’s aggressive tactics resulted in hundreds of inexperienced customers making thousands of ill-informed trades.

One example included Robinhood allowing one customer with no prior investing experience to trade 12,700 times in just over six months, an average of 70 a day.

Insane.

Robinhood is like a Video Game

To attract more millennials and Gen Z users, Robinhood was accused of “gamifying” their app.

For example, Robinhood runs down confetti following a trade. Furthermore, the app’s new cash management service — which introduced earning interest on your uninvested cash — allowed users to tap as fast as they could to move their place in line to use it first.

Additionally, when you get a free stock on Robinhood you receive a lottery ticket that users scratch off. Here’s my referral link just in case you want me to play the game… AHEM, I mean “service.”

Massachusetts Secretary of the Commonwealth William Galvin said in a statement. The alleged tactic is “not only unethical, but also falls far short of the standards we require in Massachusetts.”

Robinhood denied any allegations that their platform is like a game and intends to fight the state in court.

“Millions of people have made their first investments through Robinhood, and we remain continuously focused on serving them,” a Robinhood spokesperson told CBS.

They Aren’t Transparent

The biggest way Robinhood makes money is through something called “payment for order flow.”

Essentially, Robinhood takes a user’s stock order and sells it to a larger trading firm — the companies that actually own the stock — that then executes the trade. SEC regulators allege this was one of the central reasons why Robinhood gamified their app with hyper-aggressive marketing tactics.

Furthermore, state regulators say Robinhood made no mention of this when the company was rapidly growing between 2015 and 2018, where they grew more than 500%.

New Changes Coming

Following the settlement, Robinhood said that after Jan. 11, 2021, customers can no longer buy: