TLDR
- Robinhood agrees to pay $45 million in SEC settlement for multiple securities law violations spanning 2018-2024
- Company failed to report suspicious activity and implement adequate identity theft protection, exposing customers to fraud risks
- Security breach in 2021 led to unauthorized access of millions of users’ data due to inadequate remote access controls
- Over 11,800 Electronic Blue Sheets were submitted with errors, affecting reporting of 392 million transactions
- While crypto operations weren’t included in this settlement, Robinhood received a Wells notice last year regarding its cryptocurrency practices
Popular trading platform Robinhood has agreed to pay $45 million to settle charges with the Securities and Exchange Commission (SEC) over multiple violations of securities laws. The settlement, announced on January 13, 2025, involves both Robinhood Securities LLC and Robinhood Financial LLC.
The SEC’s order reveals that Robinhood Securities will pay $33.5 million, while Robinhood Financial will contribute $11.5 million to the total settlement. Both entities have admitted to certain findings in the order and agreed to be censured.
The violations span a period from 2018 to April 2024, with issues ranging from customer data protection failures to reporting errors. One of the main concerns highlighted by the SEC was Robinhood’s failure to promptly investigate and report suspicious activity between January 2020 and March 2022, which violated anti-money laundering regulations.
During a period from April 2019 to July 2022, the company failed to implement proper identity theft protection policies. This oversight left customers vulnerable to potential fraud, according to the SEC’s findings.
A major security breach occurred between June and November 2021, when Robinhood’s inadequate remote system access controls allowed a third party to gain unauthorized access to sensitive data from millions of users. This incident highlighted the company’s cybersecurity vulnerabilities.
The SEC also found that Robinhood did not properly maintain and preserve certain communications. Between 2020 and 2021, the company failed to keep records of off-channel communications and some customer interactions, breaking federal securities laws.
Problems with Robinhood’s fractional share trading and stock lending programs came to light as well. From May 2019 through December 2023, the company did not comply with Regulation SHO, which sets rules for short-selling practices.
The investigation revealed errors in Robinhood Securities’ Electronic Blue Sheets (EBS) submissions to the SEC. Over a five-year period, more than 11,800 EBS contained mistakes, affecting the reporting of at least 392 million transactions. These sheets are crucial tools used by regulators to monitor trading activity and investigate potential market abuse.
Both Robinhood entities violated multiple rules designed to protect customer privacy and ensure accurate record-keeping. The SEC emphasized these violations as serious breaches of federal securities laws.
Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, commented on the case, stressing that broker-dealers must meet their legal obligations to maintain market integrity and fairness.
While this settlement addresses various securities violations, it does not include Robinhood’s cryptocurrency operations. However, the company’s crypto business faces separate regulatory scrutiny.
In 2024, Robinhood received a Wells notice from the SEC regarding its cryptocurrency practices. The notice indicated that SEC staff recommended enforcement action over the company’s crypto listings, custody practices, and platform operations.
This settlement adds Robinhood to a growing list of companies facing SEC enforcement actions. The commission currently has ongoing civil cases against several major crypto firms, including Binance, Coinbase, and Ripple Labs.
The penalties reflect the SEC’s continued focus on ensuring compliance with securities laws and protecting investor interests. The $45 million settlement represents one of the larger penalties imposed on a retail trading platform.
As part of the settlement, both Robinhood entities have agreed to improve their compliance programs and strengthen their internal controls to prevent similar violations in the future.
