- Robinhood agreed to pay $65 million to settle charges from the Securities and Exchange Commission that the brokerage misled clients on its revenue from trades and the quality of its service.
- The SEC accused Robinhood of making “misleading statements and omissions” about how it made money with market makers. Robinhood, like other brokerages, sells its orders to high-speed trading firms for execution.
- The SEC alleged that while Robinhood marketed its trades as commission-free and matching or exceeding its peers in quality, the brokerage provided inferior trade prices that cost clients tens of millions of dollars.
- The settlement relates to practices “that do not reflect Robinhood today,” Dan Gallagher, the brokerage’s chief legal officer, said in an emailed statement.
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Robinhood agreed to pay $65 million to settle charges from the Securities and Exchange Commission that the discount brokerage misled customers on the quality of its trading service, the SEC said Thursday.
The regulator accused Robinhood of making “misleading statements and omissions” about how it made money with high-speed trading companies. Like other brokerages, Robinhood sells its orders to trading firms for execution in a process known as “payment for order flow.”
The SEC alleged that the brokerage routinely provided inferior trade prices, even as Robinhood marketed its trades as commission-free and executed with quality that matched or beat peers. The second-rate prices have cost clients a total of $34.1 million, even after accounting for the lack of commission fees, the SEC said.
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“Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm,” Stephanie Avakian, the director of the SEC’s enforcement division, said in a statement. “Brokerage firms cannot mislead customers about order execution quality.”
The settlement ends an investigation into Robinhood’s omission of order-flow revenue on its website from 2015 to 2018. Robinhood resolved it without admitting or denying the SEC’s charges.
The settlement relates to practices “that do not reflect Robinhood today,” Dan Gallagher, the brokerage’s chief legal officer, said in an emailed statement.
“We recognize the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve Robinhood as we grow to meet our customers’ needs,” he added.
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