Crypto News: Robinhood Fined $29.75M by FINRA for Compliance Failures

Robinhood is once again in the spotlight—this time for a 29.75 million dollar settlement with FINRA over compliance failures. The company, known for making trading accessible to millions, has been hit with fines for not properly managing its systems, failing to detect fraud, and mishandling customer accounts.

The issues happened during the same period when Robinhood restricted trading in meme stocks like GameStop and AMC, a move that sparked outrage among retail investors. So, what exactly went wrong?

Let’s break it down.

Robinhood Ignored Warning Signs Amid Trading Surge

FINRA found that Robinhood did not properly manage its system for processing trades, even though there were clear signs of delays due to a surge in trading activity. This happened between March 2020 and January 2021, the same period when the platform restricted trading in meme stocks like GameStop and AMC Entertainment Holdings.

Robinhood failed to “respond to red flags of potential misconduct,” FINRA noted, leading to Anti-Money Laundering and supervisory and disclosure violations.

Compliance Failures and Anti-Money Laundering Issues

FINRA also found that Robinhood did not do enough to detect and investigate suspicious activity, such as manipulative trades, unusual money transfers, and account takeovers by hackers. On top of that, the platform opened thousands of customer accounts without properly verifying identities, violating anti-money laundering rules.

Another issue was Robinhood’s failure to monitor and keep records of social media posts, including those from paid influencers. Some of these posts were misleading or made unrealistic promises to investors.

As part of the settlement, Robinhood will pay 3.75 million dollars in restitution to customers who were affected when the company gave incorrect or incomplete information about how their market orders were changed to limit orders. These errors impacted their trades and led to financial losses.

Robinhood Agrees To FINRA’s Findings

Robinhood Financial and Robinhood Securities agreed to FINRA’s findings without admitting or denying the charges. This comes just two months after the company settled with the US Securities and Exchange Commission (SEC) for 45 million dollars in January 2024. That case involved violations of more than ten securities laws, including the failure to maintain and preserve customer communications from 2020 to 2021.

Strong Q4 Performance Despite Regulatory Challenges

Despite these fines, Robinhood had a record-breaking financial performance in the fourth quarter of 2024. The company reported:

• 916 million dollars in net income
• Over 1 billion dollars in total revenue
• A 200 percent increase in crypto revenue, reaching 358 million dollars
• A 450 percent jump in crypto trading volume, hitting 71 billion dollars

Even with ongoing regulatory scrutiny, Robinhood continues to grow. However, compliance issues remain a concern that could impact its future.