By Katanga Johnson
WASHINGTON (Reuters) - Popular online brokerage Robinhood has agreed to pay a $65 million fine to settle charges that it misled customers, the U.S. Securities and Exchange Commission said on Thursday.
The day before, a Massachusetts securities regulator accused https://uk.reuters.com/article/us-massachusetts-robinhood/massachusetts-regulator-accuses-robinhood-of-failing-to-protect-investors-idUKKBN28Q22J the firm of engaging in aggressive tactics to attract inexperienced investors and failing to prevent outages on its trading platform.
The SEC charged the company with failing to inform customers about payments it received from trading firms to route customer orders through them, a move that resulted in customers paying higher prices to execute trades.
Between 2015 and late 2018, the SEC said, Robinhood made misleading statements and omissions on its website in response to customer questions about its largest revenue source.
"When describing how it made money ... one of Robinhood’s selling points to customers was that trading was 'commission free,' but due in large part to its unusually high payment for order flow rates, Robinhood customers' orders were executed at prices that were inferior to other brokers' prices," the SEC found.
In aggregate that deprived customers of $34.1 million even after taking into account the savings from not paying a commission.
The California-based firm made these statements amid a period of rapid growth, the regulator added.
"There are many new companies seeking to harness the power of technology to provide alternative ways for people to invest their money,” added Erin Schneider, who leads SEC's San Francisco regional office.
"But innovation does not negate responsibility under the federal securities laws."
The financial technology startup, which has been credited with helping popularize trading among millennials, neither admitted nor denied guilt, while agreeing to pay the penalty.
Robinhood also agreed to retain an independent consultant to review its policies and procedures relating to customer communications, payment for order flow and best execution of customer orders.
"The settlement relates to historical practices that do not reflect Robinhood today," the company's chief legal officer, Dan Gallagher, said in a 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."