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The Securities and Exchange Commission is investigating Robinhood’s options practices and his decision to restrict trading of certain shares at the height of the
GameStop
craze last month, Robinhood said at a securities depository on Friday.
The trading platform – which is private but expected to be made public this year – made the disclosures in an annual audit required of brokers under the Securities Exchange Act of 1934.
Robinhood has attracted the ire of investors and some members of Congress over his decision starting January 28 to restrict the purchase of certain shares, including GameStop (ticker: GME), BlackBerry (BB),
AMC Entertainment Holdings
(AMC) and Bed Bath & Beyond (BBBY). The company said it was forced to restrict trading due to increased financial demands from its clearinghouse.
Robinhood also faces several other customer investigations and lawsuits that, according to the company, could result in financial penalties.
State regulators and the Financial Industry Regulatory Authority, or Finra, are also investigating options trading on Robinhood and disruptions that investment application users experienced in March 2020. Robinhood is negotiating a deal with Finra that could cost the company company at least $ 26.6 million, the filing said.
The company’s options practices have come under the microscope since a 20-year-old named Alex Kearns killed himself last year after expressing anguish over an options trade in his Robinhood account. Kearns’ family filed a wrongful death lawsuit against the company. Robinhood said he was “devastated” by Kearns’ death last June and was “committed to making Robinhood a place to learn and invest responsibly”.
The company is also dealing with a class action on “account taking”, where someone seems to have gained access to Robinhood’s accounts.
The trade restrictions that Robinhood imposed in January led to 46 lawsuits, the company said. And a long list of agencies is examining the issue, including “the United States Attorney’s Office for the Northern California District, the SEC’s Examination Division, Finra, the New York Attorney General’s Office, other offices of prosecutors- general and several of the state securities regulators, ”said the company.
“Due to the preliminary nature of all of these processes, we are currently unable to estimate the probability or magnitude of any possible losses related to these issues,” said Robinhood.
Write to Avi Salzman at [email protected]