Stock and cryptocurrency trading app Robinhood has filed an application with the U.S. Securities and Exchange Commission for an initial public offering.
In a Form S-1 registration statement filed Thursday with the SEC, Robinhood said it intended to move forward with an initial public offering its Class A common stock. If approved, the company said it plans to trade using the ticker “HOOD” on the Nasdaq and raise $100 million in the debut.
The trading app had said it was planning to go public last month but postponed the offering to July. The firm has been the subject of an investigation from the U.S. Financial Industry Regulatory Authority, or FINRA, and is reportedly under scrutiny from the SEC as well.
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The IPO announcement comes just one day after FINRA ordered Robinhood to pay roughly $70 million in fines related to its alleged “systemic supervisory failures” and restitution to customers it had allegedly caused “widespread and significant harm.”
Robinhood has been fined by FINRA and the finance company will have to pay roughly $70 million in penalties. The company was fined for causing what was described as “widespread and significant” harm to customers.
FINRA announced that it had fined Robinhood $57 million. And ordered the company to pay $12.6 million in damages to customers, plus interest. Bringing the total amount to roughly $13 million to be paid in damages.
This penalty is the largest penalty ever ordered by the Financial Industry Regulatory Authority. FINRA is a non-governmental, self-regulatory organization that oversees the brokerage industry.
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What Triggered This?
FINRA cited that Robinhood had caused customers significant harm by showing them incorrect balances.
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One of such cases had led to the suicide of a 20-year-old customer. In the suicide note left behind, the customer says that they did not believe they had turned on margin trading. And yet somehow, Robinhood had let them trade with borrowed money. Leading to massive losses for the customers.
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The platform had shown the customer that he had a negative balance of $730,165. Losses that were incurred from using the margin trading feature. When in fact, the customer had a balance of $365,530.60.
There have been numerous allegations of Robinhood showing customers wrong balances.
According to FINRA, the 20-year-old was not the only victim of this. More than 800,000 Robinhood customers had been allowed to make trades that automatically triggered margin trading. Allowing users to trade with borrowed money. This would happen regardless of whether they had turned on the margin trading feature or not.
Total crypto market cap holding steady ahead of trading day | Source: Crypto Total Market Cap on TradingView.com
According to them, Robinhood had failed to establish and maintain an adequate system for complying with regulations.
“Compliance with these rules is not optional and cannot be sacrificed for the sake of innovation and willingness to ‘break things’ and fix them later.” – Jessica Hopper, Head of FINRA’s Enforcement Department
The creation of fraud accounts on the platform was also another issue cited. Apparently, Robinhood had authorized the opening of accounts even though they were warned that these accounts might be fraudulent.
There were more than 100 accounts that had social security numbers that may belong to deceased people.
Containing on further, FINRA also alleged that Robinhood had failed to report tens of thousands of complaints that the company was obligated to report.
Robinhood’s Response
Robinhood has neither confirmed nor denied the allegations levied by FINRA. But the company did reply to the action being taken by FINRA against them. The company ensured that Robinhood had invested heavily to improve the platform.
“Robinhood has invested heavily in improving platform stability, enhancing educational resources, and building out customer support and legal and compliance terms. We are glad to put this behind us and look forward to continuing to focus on our customers and democratizing finance for all.” – Jacqueline Ortiz Ramsay, Head of Public Policy Communications at Robinhood.
Robinhood was founded in 2013 and has been in operation ever since. Headquartered in Menlo Park, the American financial company offers commission-free trades on stocks and exchange-traded funds. They do this through the mobile app that they released in 2015.
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Robinhood rose to prominence with the explosion of “meme stocks” during the pandemic. Stocks like GameStop were traded based on social media sentiment and Robinhood was the primary medium for most investors.
Robinhood had already set aside $26.6 million in preparation for the fine which they predicted was coming. But the fine turned out to be more than double the amount they had speculated.
This will not be the first time the company is getting fined by FINRA. Robinhood had been fined $1.25 million earlier in 2019 for best execution violations.
It is not yet known when Robinhood will pay out the fines and settlement. But the company looks ready to move forward from this as quickly as possible.
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The U.S. Financial Industry Regulatory Authority is penalizing Robinhood to the tune of roughly $70 million based on the results of an investigation into the stock and cryptocurrency trading app.
In a Wednesday announcement, the Financial Industry Regulatory Authority, or FINRA, said it had ordered Robinhood to pay $57 million in fines to the regulatory body as well as provide roughly $12.6 million in restitution to certain customers. FINRA alleged the trading platform caused “widespread and significant harm” to thousands of users and exhibited “systemic supervisory failures” starting as early as September 2016.
“The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood’s violations, including FINRA’s finding that Robinhood communicated false and misleading information to millions of its customers,” said the head of FINRA’s department of enforcement Jessica Hopper.
The false information to which FINRA referred includes allegations Robinhood misrepresented margin trades, users’ cash holdings in the app accounts, the risk of loss in options transactions, how much buying power users had, and information regarding margin calls. According to the regulatory body, “Robinhood neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.”
Regulators said the firm was responsible for paying $7 million in restitution to customers who reported seeing inaccurate negative cash balances in their accounts. The body referenced Alexander Kearns, a 20-year-old Robinhood user who committed suicide in June 2020 after an erroneous negative balance of more than $730,000 appeared in his account. In addition, FINRA ordered the trading platform to pay more than $5 million to users affected by Robinhood’s outages between 2018 and 2020, alleging that many users had lost up to tens of thousands of dollars in trades the platform was unable to execute during significant market volatility.
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The penalties paid to FINRA directly seem to be based on Robinhood’s company policies and apparent failure to provide a clear picture of market data for customers. The regulatory body said between January 2018 and December 2020 the trading platform failed to report thousands of user complaints to FINRA following all the aforementioned issues. In addition, Robinhood’s process to approve customers for options trading relied on algorithms rather than “firm principals.” FINRA said this method had resulted in the approval of thousands of users who did not meet the company’s eligibility criteria or whose accounts should have otherwise been flagged.
The results of the FINRA investigation come as Robinhood is planning to move forward with an initial public offering, or IPO. However, the firm is currently under scrutiny from the U.S. Securities and Exchange Commission, reportedly resulting in the delay of the company going public. Robinhood initially planned to launch its IPO this month but has reportedly postponed the offering to July.
Bitwise Asset Management, a provider of cryptocurrency index funds, is seeking regulatory approval that would enable it to publicly trade shares of its bitcoin fund on an over-the-counter (OTC) marketplace.
According to a press release issued Tuesday, the company has filed a 211 form with the U.S.’s Financial Industry Regulatory Authority (FINRA) for the Bitwise Bitcoin Fund.
Aiming to compete with bitcoin investment vehicles from the likes of Grayscale Investments and Galaxy Digital, the firm plans shares of its fund to be publicly traded on the New York-based OTCQX marketplace. Fidelity Investments would oversee the custodianship of the fund’s bitcoin assets.
OTCQX is designed for both U.S. and international companies, which are required to meet strict financial standards to qualify for the market.
If approved by FINRA, shares in the Bitwise fund would be available for trading in traditional brokerage accounts and could be held with traditional custodians, according to the release. The company is yet to announce a ticker for the fund.
“There is significant growth in interest from professional investors in accessing bitcoin as a tool to hedge their portfolios against rising inflationary risk,” said Bitwise’s chief investment officer, Matt Hougan.
Hougan added that increasing numbers of financial advisors are “taking note” of large allocations to bitcoin from hedge funds, institutions and insurance companies, and may move to make their own investments.
The company told CoinDesk the fund offers a 1.5% expense ratio, which is lower than Grayscale’s Bitcoin Trust (GBTC) at 2.0%. Grayscale is owned by Digital Currency Group, the parent company of CoinDesk.
Should approval be granted, the Bitwise Bitcoin Fund will become the second Bitwise fund cleared for public quotation following the company’s successful approval for its Bitwise 10 Crypto Index Fund in December.
U.S. lawmakers asked the SEC and FINRA to clarify how crypto firms can become registered broker-dealers and provide custody services for crypto assets.
