In summary
- Robinhood is handling several regulatory polls and expects to pay a financial regulator at least $ 26.6 million in a possible deal.
- Not everything is sadness and disgrace for the company, which is preparing to go public – Robinhood is valued at US $ 20 billion and added 6 million cryptography users as early as 2021.
Robinhood, the popular stock trading app, announced on Friday that U.S. regulators were preparing to probe their restrictions on trading shares in GameStop (GME) and others.
The company said in a filing with the United States Securities and Exchange Commission that it is now cooperating with investigations by several regulatory bodies, including the SEC, the Financial Industry Regulatory Authority (FINRA) and the New York Attorney General’s Office .
Decrypt contacted Robinhood for further comments.
Liquidation in progress
In the SEC filing, Robinhood also said he is preparing to pay at least $ 26.6 million in a potential settlement with FINRA – not about GameStop restrictions, but about trading interruptions in March 2020 and its trading policies of options around approval and delivery.
Robinhood, in his lawsuit, said he is “involved in discussions with the FINRA team regarding a possible negotiated resolution of certain FINRA issues, including the March 2020 interruptions and options trading”, and that he expects “any resolution, if reached, will involve accusations of violations of FINRA rules, a fine, client restitution, censorship and a compliance advisor. We have accumulated in our statement of financial condition for the year ended December 31, 2020 of $ 26, 6 million, representing the bottom of the range of our likely losses. We cannot predict, however, whether these discussions will result in a resolution of these issues. “
From the commercial frenzy to the regulatory frenzy
Robinhood’s options trading policies became particularly controversial when Alex Kearns, a 20-year-old broker, committed suicide last year after mistakenly believing he had lost almost $ 750,000 in an options bet placed on Robinhood. In reality, he had a balance of $ 16,000, but that was reportedly poorly communicated.
The app in January was examined again, when it stopped buying GameStop stock amid the frenzy of trading driven by investors who did not tighten social media. Base investors on Reddit coordinated the purchase of GameStop shares to raise prices, forcing hedge funds to buy even more.
As the frenzy unfolded, Robinhood quickly halted negotiations with GME and other stocks subject to an equally unusual demand, including Nokia (NOKIA) and AMC Entertainment Holdings (AMC). Separately, he also restricted purchases of instant deposits for cryptocurrencies.
The company defended the restriction on trade – the extraordinary demand increased its accounts to the clearing houses, forcing them to make that decision, she said in an effort to justify the controversial action. “It wasn’t because we wanted to stop people from buying these shares,” said the company.
But none of these public statements did much to calm the angry traders who questioned the app’s claim to “democratize trade,” since the move was considered to be in Wall Street’s interest.
The SEC has vowed to protect dealers and has now joined others in regulatory efforts to examine Robinhood.
About that…
The regulatory headache comes at a particularly inopportune moment for the company, which is preparing to go public later this year, boasting an informed valuation of about $ 20 billion.
But negative publicity is still advertising – Robinhood added more than 6 million new cryptographic customers in the past two months alone.
Disclaimer
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.