Massachusetts Securities Regulator Charges Robinhood with Failure to Protect Customers

​The Enforcement Section of the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth charged that Robinhood, a zero-fee trading app, has marketed itself to Massachusetts investors without regard for the best interests of its customer and failed to maintain the infrastructure and procedures necessary to meet the demands of its rapidly growing customer base.

The regulator's enforcement arm said that the platform used advertising and marketing techniques that targeted younger individuals, including Massachusetts residents, with little investment experience these years.

According to its own calculations, 68% of Massachusetts-based Robinhood customers had been authorised to trade options even after reporting limited or no investing expertise.

Furthermore, the regulator noted that Robinhood failed to implement polices and procedures reasonably designed to prevent and respond to outrages and disruptions on its trading platform, where seventy outrages or disruptions occurred from January 1, 2020 to November 30, 2020.

“AS a broker-dealer in Massachusetts, Robinhood has an obligation to protect its customers and their assets. However, its business model and lack of adequate procedures has put both customers and their assets at risk. By doing so, Robinhood has failed to comply with recently adopted standards of conduct for Massachusetts-registered broker-dealer,”the statement further reads.

The company is ordered to permanently cease and desist from further conduct in violation of the Act and Regulation in the Commonwealth, provide restitution to fairly compensate investors for those attributable to the alleged wrongdoing and take any further action which may be in the public interest and necessary and appropriate for the protection of Massachusetts investors.