Scott Martin, creator of Kingsview Wealth Management and Future File’s legacy planning system, Carol Roth, provides his insights on how Wall Street and Robinhood reacted to Gamestop’s short tightening.
Robinhood Markets Inc. told Massachusetts regulators on Friday that it does not take advantage of inexperienced customers, crowning a wild week during which the popular online brokerage drew strong ire for doing just the opposite: getting in the way of customers.
Still recovering from the intense turnaround of his decision this week to restrict clients from doing business on certain bullish stocks, Robinhood on Friday responded to a December complaint from Massachusetts securities regulators. The state accused Robinhood of failing to protect its customers and their assets through aggressive marketing to inexperienced investors and of failing to implement controls to protect them.
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In a 50-page response, Robinhood called the allegations false and the complaint “distorts Robinhood’s experience”.
Instead, Robinhood countered, helped open the door to investment for millions of people. He rejected claims that the brokerage firm encourages frequent interaction with its platform, fails to keep technology operators fluid, and allows clients to engage in riskier options trading without having the necessary qualifications. Even more, said Robinhood, most of the items for which he was criticized by regulators are legal.
“It is legal for customers to choose to receive notifications on their phones, enter waiting lists and receive free stock shares. App features like digital confetti are cool,” said Robinhood in his response. “It is also legal for these clients to trade options and for Robinhood to approve clients to trade options based on previous experience with options.”
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He continued: “And it is legal for Robinhood to have an application that, in isolated instances, has experienced temporary interruptions. All websites and applications are susceptible to interruptions and many brokerages suffer them.”
A spokeswoman for William Galvin, Massachusetts Community Secretary, whose office filed the administrative complaint in December, declined to comment on Robinhood’s response, saying it is being reviewed. She added that the firm is still confident in its complaint “and recent events have not changed that”.
In just over a month, a lot has changed for the online broker, where millions of users have gathered in recent years to make free trades. In addition to the Massachusetts accusations, Robinhood now faces scrutiny from individual investors and members of Congress, who have accused the company of preventing users from capitalizing on a wild week of negotiations. As of Thursday, Robinhood was one of many brokerages that restricted trade in major stocks, including GameStop Corp. and AMC Entertainment Holdings Inc.
Behind the scenes, Robinhood was quickly assembling an infusion of more than $ 1 billion to help the company meet the growing cash demands stemming from the frantic trade.
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In Friday’s response to the Massachusetts case, the company also contested claims that it falls far short of the “fiduciary standard” the state has recently adopted, which requires brokers to act in the best interests of clients. The charges centered on the tactics the company uses to keep customers engaged, claiming that it “encourages customers to use the platform constantly” through what it calls “gamification”.
Robinhood argued that the fiduciary rule does not apply because, the broker argued, it is only relevant when a broker-dealer gives a recommendation to a client or provides investment advice. He added that the list that offers the 100 most popular stocks is the same for all customers and is not targeted at any specific customer or group. He also denied that he “gamified” the experience for investors and said that criticizing app features like confetti “reflects a distinctly antiquated view of communication in the digital age.”
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Robinhood has long prided itself on “democratizing” markets – and its moves this week to restrict trade have been seen by some as directly undermining its mission. In his response on Friday, Robinhood reiterated this idea to regulators, with the broker claiming that, in the three years since December 2017, it has saved Massachusetts customers about $ 180 million to $ 360 million in commissions.
Robinhood also claimed that securities regulators did not speak “to a single Robinhood employee during their investigation” or requested “important documents” on topics such as technological disruptions and approval of options. Because of that, Robinhood said, the regulators’ complaint was “fundamentally at odds with the facts”.