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.
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. It rejected claims that the brokerage gamified investments, did not keep technology operators fluid and allowed clients to engage in riskier options trading without having the necessary qualifications. Even more, said Robinhood, 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 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.”
He continued: “And it is cool for Robinhood to have an application that, in isolated cases, has experienced temporary interruptions. All websites and applications are susceptible to disruption, and many brokers face 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. On Thursday, Robinhood was one of many brokers that restricted trading 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.
In Friday’s response to the Massachusetts case, the company also contested claims that it falls short of the “fiduciary standard” that the state recently adopted, which requires brokers to act in the best interests of clients. The accusations focused on the tactics the company uses to keep customers engaged, saying 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. Robinhood said in its response that its customers make their own business decisions. He added the lists he offers, like the 100 most popular stocks, are the same for all customers and are 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.”
Robinhood has long prided itself on “democratizing” markets – and its moves this week to restrict trade were seen by some as a direct reduction of 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 “as far as Robinhood knows”, securities regulators did not speak “to a single Robinhood employee during their investigation” or requested “important documents” on topics including technological interruptions and approval of options. Because of that, Robinhood said, the regulators’ complaint was “fundamentally at odds with the facts”.
Write to Caitlin McCabe at [email protected]
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