Robinhood, the self-proclaimed “Democratized Finance” application accused deceiving and scamming retail investors will have to shell out another $30 million to appease regulators. This brings the company’s overall regulatory fine and settlement tab well over $100 million.
In a deposit On Tuesday, the New York State Department of Financial Services ordered Robinhood’s cryptocurrency division to pay the hefty fine and accused the company of engaging in “significant anti-corruption violations.” money laundering, cybersecurity and consumer protection”. The financial blow is just the latest in a series of regulatory headwinds for the company in recent years and the first cryptocurrency app for New York regulator.
While Robinhood is best known for its stock micro-trading service that appeals to casual investors, the company’s crypto division has also operates an exchange which allows users to buy and sell cryptocurrencies. NYDFS investigators, who opened their initial investigation last March, claim Robinhood failed to maintain effective and compliant cybersecurity programs, violated reporting requirements, and failed to properly certify compliance. The agency found “critical deficiencies” in the company’s cybersecurity program, which it said did not fully address “operational risks.” In addition to the penalty, Robinhood will need to retain the services of an independent consultant to perform an assessment to determine corporate compliance going forward.
“As its business grew, Robinhood Crypto failed to invest the appropriate resources and attention to develop and maintain a culture of compliance – a failure that resulted in significant violations of the Department’s compliance regulations. anti-money laundering and cybersecurity,” said NYDFS Superintendent of Financial Services Adrienne. A. Harris said in a statement.
In response to Gizmodo’s request for comment, Cheryl Crumpton, Robinhood’s associate general counsel for litigation and enforcement, said the company was “pleased” to make the settlement final.
“We have made significant progress in building industry-leading legal, compliance and cybersecurity programs, and we will continue to prioritize this work to better serve our clients,” Crumpton said. “We remain proud to offer a more accessible and lower cost platform to buy and sell crypto and we are excited to continue to grow our business responsibly with new products and services that our customers want.”
Unfortunately, the NYDFS well was just the start of Robinhood’s troubles on Tuesday. A few hours after this beautiful announcement, the CEO and founder of Robinhood, Vlad Tenev, published a blog post announcing that the company was reducing approximately 23% of its workforce as part of a wider corporate reorganization. Tenev, addressing his newly unemployed staff as ‘Robinhoodies’, said the dramatic cuts will impact workers across the company, operations, marketing and program management teams. bearing the weight of the burden.
The layoffs come about three months after Robinhood announcement it would grow to 9% of its staff after a period of pandemic-fueled “hyper-growth”. Now, Tenev says, those cuts “didn’t go far enough.” The CEO said rising inflation, coupled with the collapse of the cryptocurrency market, has drastically curtailed business activity for his clients.
“Last year, we staffed many of our operational functions assuming that the heightened retail engagement we had seen with stock and crypto markets in the COVID era would persist well into 2022,” he said. said Tenev. “In this new environment, we are operating with more staff than necessary. As CEO, I endorsed and took responsibility for our ambitious staffing trajectory – it’s on me. »
Robinhood was founded almost a decade ago in 2013, but only entered the collective imagination of most people last year for its role as the primary vehicle for retail investors to pump stoppage of play, CMAand other so-called meme-stocks. While some users made millions during the trading frenzy, many others lost money. Robinhood infuriated some of its users when it stepped in to stop trade of certain stocks that prevented some users from selling until prices fell. Over the next year, the company faced numerous regulatory complaints and investigations. Last June, the Financial Industry Regulatory Authority (FINRA) hit Robinhood with a $57 million fine, the heaviest sanction ever imposed by the agency. Shortly after, Robinhood agreed to pay the Securities and Exchange Commission $65 million to settle the fee misleads clients by claiming to be a commission-free method of stock trading.
Individual investors who would have been burned by Robinhood are also starting to see payouts. Earlier this year, a FINRA arbitrator ruled in favor of a 27-year-old truck driver named Jose Batista, who claimed he lost money after Robinhood enacted its trading restrictions. FINRA order Robinhood to pay the man $29,500 in restitution. Batista is far from alone. The Federal Trade Commission said it received 3,081 complaints about Robinhood between 2020 and mid-2021 according a Freedom of Information Act petition filed by Gizmodo earlier this year.
“I understand the market can be volatile, but it was Robinhood who refused to honor trades from people who bought the stock legitimately,” said one user who claimed he was forced to sell at a loss in reason for Robinhood’s involvement in a complaint. “Since Robinhood has not responded to customer service emails, tweets, or anything else regarding this issue, I have to assume that Robinhood may do so in the future for any further action that ‘he doesn’t want to pay.
Updated at 5:05 p.m. ET with additional headcount reduction news.
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